Every year, businesses all over the country are subjected to employee fraud. And while the big companies are at risk, small and medium-sized businesses are equally and sometimes more at risk, primarily due to a lack of awareness or a false sense of security.
The key is to trust your gut and recognise that no one knows your company as well as you do. If something doesn’t look or feel right, it’s probably not. The tips below offer suggestions that business owners can utilise to protect their financial assets as well as their reputation.
Establish a code of conduct
Every business should have some form of code of conduct that acts as a statement which highlights that your business will not tolerate unethical or illegal behaviour toward anyone such as customers, suppliers, employees, or even the company itself.
You should write and post a code of conduct that clearly spells out the rules for employees and the repercussions for not following them. Give the code to everyone upon hire and periodically thereafter, and require written acknowledgement that they have read, understand, and agree to comply with it.
Be wary of multitaskers
In a business, one person may wear many hats. But the most dangerous multitasker is a solitary administrator who opens the mail, handles deposits, and file transaction documents. No one person should control that many aspects of the business.
Avoid assigning the same person to handle purchasing and vendor payments, or allowing the same employee to manage accounts payable and accounts receivable. If you’re a manufacturer or distributor, you should have separate people managing receiving, warehousing, and shipping.
At the very least, set up an operation in which one person controls what comes in (cash, merchandise, supplies) and another that handles what goes out (payments, orders, finished products).
Institute policies and procedures
Someone other than the bookkeeper should settle bank statements every month. Furthermore, the person who reconciles the bank statements should not have the ability to enter or modify transactions in the accounting system.
Another way to prevent fraud is to have payroll prepared and authorised by HR but entered by accounting. It can then be checked by management before the funds are allocated to payroll.
Also, keep everything locked up that should be locked up, and enforce rigorous key control and computer-system access, especially for departing employees. When someone leaves or is dismissed, consider changing locks and passwords company-wide.
Watch employees’ behaviour
If you notice changes in an employee’s behaviour, you should look into it. Changes can be anything from misplaced files, they don’t want help with a project, they’re giving a customer excessive attention, etc.
The same goes for an employee with access to critical parts of the company’s operations or finances who never takes vacation time or who routinely works early or late when no one else is around. This could be a signal that they don’t want anyone else to see what they’re doing. Therefore, insist that people use their vacation time and stick to regular business hours.
Monitor your financial resources
Store your financial resources in a secure location and carefully review your bank statements each month, taking special care to look for checks made out to cash for employees or suppliers you don’t know. It’s a good idea to have your bank mail your company’s statements to your home address, so you’re sure you receive them before anyone else.
Be a role model and lead by example
An effective way to prevent fraud in your business is to create a positive work culture. It is important that the business owner and senior management serve as role models of honesty and integrity. If the individuals at the top take a careless approach toward company policies and procedures, they are inviting their employees to do the same.
It is one thing to demand honesty from your employees, but it goes both ways. If for example, employees see you take home merchandise or use company property for personal reasons, they may follow your lead or worse. If you treat employees with respect, compensate them appropriately, and offer opportunities to advance their careers, they’ll have less motivation to steal or cheat.
Implement an anonymous fraud reporting system
Every company should establish a system that makes it easy for employees, vendors, and customers to anonymously report suspected fraudulent activities. Be sure employees understand what constitutes fraud and that all reports are treated confidentially and without reprisal.
Work with a CPA
Consider hiring a CPA to conduct both regularly scheduled and surprise audits. Audits can serve as a deterrent because when employees are aware that there will be checks of their areas, they are more likely to stay honest. A CPA can also help you set up and maintain effective internal financial controls.
Screen applicants thoroughly before hiring them
Last but certainly not least, it’s always a good idea to perform background checks on potential employees. Hiring the right employees is the best way to ultimately stop fraud before it happens. You will be able to know if the person you are hiring is potentially harmful to your business.
We at MarisIT can provide you with detailed, comprehensive criminal background checks. It will enable you to simplify your decisions during the recruitment phase and it will allow you to reduce your employee turnover, boosting your hiring success.
