In this struggling economy, privately held small and medium-sized businesses are facing a rising threat of employee fraud. Studies have shown that small organizations with only 100 employees or less suffered higher median losses than did the largest organizations from fraud.
Employee fraud, such as check forgery or petty cash theft, often occurs when workers feel financial stress in their personal lives. Small companies often lack internal controls to property detect or prevent fraud. Though no business owner wants to feel that it has employed questionable people, sometimes temptation or personal pressures can push even the most trusted and hardworking employees into perpetrating fraud.
Employees who guard access to accounting software, live a lifestyle beyond their means, or never take a vacation should all raise suspicions. Employees who are committing fraud often do not take vacations because they are afraid of getting caught while they are away. The key is often to let employees know you are watching for it, as perception of detection is a powerful deterrent. Other than that, it begins with hiring the right employees. Conducting quick background checks for people handling inventory and money is often worth the time and money. A drug test may also be necessary (provided you follow state and federal guidelines), since employees often steal from a business to support an addiction. For cash situations, security cameras that monitor activity at registers and storage areas are effective deterrents for fraud.
The business owner should maintain strong internal controls with checks and balances in place. The financial statements should be reviewed often (every month) to check for suspicious behavior. Surprise audits can be great to catch employees off guard, as they will not have time to change the records to hide the fraud. A fraud policy that is taught to employees through orientation and training may suffice.
Once a business owner discovers fraud, he or she should seek help from an accountant, an attorney, and maybe the police.