Small Business Fraud, Six Solutions
5 June 2008

Small Business Fraud, Six Solutions

Technology is making it easier than ever for con artists, competitors and even your own employees to steal from your business.

Now you may be thinking, “I know all the people I work with. I know their kids, their significant others and even their pets; they would never, ever steal from me.” The sad truth is gas prices are high, foreclosures are on the rise and even food prices are going up. Some people are desperate. “The median loss from embezzlement cost small companies $190,000 in 2006, up from $98,000 in 2004, according to the latest numbers from the Association of Certified Fraud Examiners.” (cnnmoney.com) That means a small business’ median loss from embezzlement almost doubled in 2 years. Wow. Unfortunately, as small business people we often wear many hats. Where can we find the time to protect ourselves from fraud? Truth is, we’ll have to make the time. The potential of losing as much as $200,000 (or more) to fraud is not a problem you’ll want to ignore.

There are a number of ways you can start protecting yourself from fraud today.

#1 Identify Weaknesses Sit down with your attorney, accountant and/or bookkeeper and examine where your business may be vulnerable. No two businesses are alike, so it’s important to find your specific challenges and then find customized solutions to keep your business safe.

#2 Eliminate Temptation Why put the cookie jar where your child can reach it? Conduct planned (and surprise) reviews. Put security cameras up where cash is handled. Make sure your business uses a system of checks and balances. Commit time to accounting every month. Often discouraging fraud is simply a matter of removing temptation! According to the Association of Certified Fraud Examiners, “factors that indicate a higher level of trust are directly correlated to the size of fraud.” (www.nfib.com) You may trust your employees, but not checking up on them can sometimes be too much temptation to handle.

#3 Hire the Right Employees Do background checks, call references, verify past employment and education. Compare this information to your applicant’s resume. Do your best to find out if potential employees are trustworthy before you hire them.

#4 Create an Ethics Policy “Companies that feature a strong enterprise-wide cultural approach to ethics reduce misconduct by three-fourths.” (2007 National Business Ethics Survey) There may only be a few people who work at your company, but it never hurts to create an ethics policy and make sure everyone knows about it. Don’t make it long or complicated. Let employees know about your ethics policy during your training program, memos or any other company communications. Make sure employees are also aware of the consequences if you suspect or discover any acts of fraud.

#5 Enforce Mandatory Vacations You may think the employee who never takes vacation has a great work ethic! However, this can be a red flag. A dishonest employee may be afraid to take a vacation because someone will find out that something isn’t right. By simply enforcing mandatory vacations, you’ll know that employee won’t be behind their desk for a set amount of time. This will be a great time to check out their work area and make sure everything is in place. However, some states do have laws protecting the privacy of an employee’s work area. Check with your attorney before conducting a search. There’s a chance any evidence you find may be tossed out if you’re not in compliance with your state laws.

#6 Stay Consistent Develop a system of workflows and standards. Most importantly, don’t take shortcuts! They may save you time, but they eliminate the safeguards you worked so hard to put in place. Consistently following your procedures is key to preventing fraud in your business.

What to Do if You Suspect Fraud

  • Is that large account you landed back in February not reflected in your books?
  • Do you have an inventory shortage?
  • Are you receiving questionable invoices from companies that may be nonexistent?
  • Do you have customers claiming they mailed you checks, but the checks never surface?

You may have a problem on your hands. At this point, it’s best to call an expert in fraud detection, a Certified Fraud Examiner (CFE). Contact the Association of Certified Fraud Examiners to find a CFE in your area.

Best of luck to your business from your friends at ShuBee!