According to research done by the Association of Certified Fraud Examiners, US companies lose around 7 percent of annual income to fraud. Employee fraud is a serious exposure for businesses and can result in lawsuits that can cripple and even close a corporation. There are several things you can do as a small business to minimize the risk.
Analyze your areas of risk: Check areas that offer an exposure such as checking accounts, invoices, inventory, payroll,credit card processing and sensitive client information. Make sure that there are controls in place to constantly monitor these areas. On checking accounts require two signatures. Inventory should be processed at least once a month. Invoices should have a re-check to make sure extra items are not being purchased or re-routed. Your accountant should provide you with a monthly statement of income and expenses. Payroll should be reviewed by two parties.
Purchase insurance: Insurance for employee theft has moved into modern times. Prior, the type of coverage that could be purchased was limited. Today, however, coverage has expanded for commercial businesses. To decide which coverage is best for your type of business, contact a commercial insurance specialist.
Password computer systems: Each computer system at work should require each employee to enter their password into the system. This allows the employer to know who used which system at what time. Also, sensitive information can be blocked for access to only those that need it to do their job. This limits the exposure of the business and keeps better control on how many people can get to it.
Hire a CPA: A CPA can perform a audit of your financial records and do a review of your internal controls. They can also give advice of expose areas that you might not have thought of.
Do background checks annually: Most companies do a background check when you are being hired, but many times when fraud is discovered, it is employees that have a significant length of employment with the company that commit the fraud. Changes in peoples lives can sometimes bring out unexpected behavior. As a employer you don’t want to pry into your employees privacy, however, depending on what type of business you have, it may be necessary to the company. Also, if fraud is suspected, it may help to narrow down who may be party to it.
It is important to remember that fraud can even occur among partners and spouses, not just employees. The more you know about what is happening within your business the better. Taking the steps to be proactive in preventing fraud from occurring could make a difference in your businesses survival.