As difficult as it may be to believe, employee fraud and theft is a major concern in most businesses, small and large. In the case of a business, fraud refers to stealing cash or non-cash assets, intentionally misstating facts on the business’ financial statements, and corruption (where employees influence business transactions for their own benefit).
Research shows that, where fraud happens, business stand to lose over 5% of their turnover on an annual basis. This can have a serious impact on your business’ cash flow and profitability. While we like to believe that all our employees are loyal and trustworthy, there are many reasons why an employee might commit fraud – and many, many ways in which they can successfully do so.
Detection and prevention of fraud are crucial to protecting and preserving your business. It is worthwhile to have a fraud prevention plan in place – this may take some time to implement but it will be a lot less costly than losing your hard-earned wealth due to fraudulent activities.
The following tips will help you put in place a plan to prevent fraud in your business:
- Treat your employees well: A great working environment does not guarantee that your employees will behave ethically at all times. However, people who feel valued and appreciated at work are much more likely to be loyal and to look out for the company’s needs than those who are undervalued or, even worse, badly treated. While work should always remain a professional space, there are ways (like an open door managerial process) to create a ‘family’ feel in your business. This will make all employees feel as if they are an integral part of the team and will encourage them to look out for your business, monitoring new employees while feeling comfortable enough to come to you with any concerns about their behaviour or intentions.
- Implement internal controls: Internal controls involve systems that prevent fraudulent activities and ensure accurate record keeping, as well as regular checks and balances. Keeping accurate records, that are checked by different employees at different but regular times, is an important way to catch fraudulent activities at an early stage. The division of tasks within the same ‘production’ chain is another effective internal control – if one person is responsible for collecting cash payments, another might be responsible for the records, and another for depositing that money into the bank etc. You can hire an expert to help you put in place up-to-date internal systems, and monitor them on a regular basis.
- Put in place a reporting system: Most reports of fraud come from other employees in a company – in the form of (sometimes anonymous) tips. Some employees may be too nervous or even sacred to report fraud to you directly. This can be mitigated by putting in place an anonymous reporting system e.g. a website or a tip hotline, where a reporting employee’s identity is kept anonymous and they can feel free to report any suspicions without the fear of persecution.
- Spread the word: It is important to know what steps you will take to prevent fraud in your business, and to share those in a formal way with all your employees e.g. through a written policy document distributed at new employee orientation. This should help to deter employees from committing fraud (knowing that the boss is watching and is aware of potential risks). It can also be useful should you need to discipline employees for fraudulent behaviour – everyone who works for you should understand what fraud is and the consequences of fraudulent actions.
- Hire expert help: Instead of trying to handle all your business’ books and records yourself, hire professional accountants and consultants to help you. They will bring their experience, expertise, and outside perspective to bear on the money side of your business, and they can help you establish the correct anti-fraud policies and procedures as part of a structured business plan.
Fraud can happen anywhere, at any time, in any business. And it can have devastating effects on that business’ finances, well-being, and reputation. It is an issue that must be dealt with as effectively as possible, preferable with a multi-pronged approach. And, when it comes to fraud, prevention is certainly better than cure.