Ep. 12 | 8 FRAUD PREVENTION TIPS FOR SMALL BUSINESS  The greatest asset in any small business are the people.  Unfortunately, they’re also one of your greatest sources of risk.  So, I want to talk to you about 8 fraud prevention tips for small  business.  Especially when it comes to your people.  But first, let’s look at why employees steal.  They do so for a variety of reasons, such as:

* Greed

* Financial problems

* Unexpected bills

* Addictions (drugs, alcohol, gambling)

* Opportunity

* Weak financial controls

* Bad cash management processes

* And of course, rationalization such as “I deserve a raise” or “other people do it”.

According to the Association of Certified Fraud Examiners:

* Employees account for about 58% of theft (while shoplifting accounts for about 35%)

* Your employees are more likely to steal from you than your customers (a recent study suggested 75% of employees have stolen from their employer at least once)

* Men are more likely to steal than woman

* H.S. grads account for 34% of theft.  College grads account for 34% as well.

* Those with graduate degrees account for 11% of theft (but they steal 5x more)

* Management is responsible for about 37% of fraud

* 1 in 3 retail employees are arrested for internal theft, and finally…

* It takes an average of about 2 years before a fraud is detected

With all of this in mind, I’d like to offer a handful of useful tips to help you mitigate risk with your employees.  These tips are in no particular order.  Of course, there are  thousands of useful tips to prevent fraud in small business.

Tip #1  CONDUCT PRE-EMPLOYMENT BACKGROUND CHECKS  A background check looks at criminal history, sex offender status, credit report, driving records, education, previous jobs and references.  Drug testing is also good for those who drive or operate heavy machinery.  These checks can cost anywhere from $30 to $300 or more depending on what you want to check.  It won’t stop someone from stealing – but it may stop you from hiring a bad risk.

Tip #2  DON’T ALLOW A SINGLE EMPLOYEE TO DO THE ACCOUNTING AND BOOKKEEPING  Employees who handle the finances shouldn’t operate in isolation.    Institute regular, unplanned audits by a third party.  Make sure the same employee doesn’t, both open the mail and post checks (those tasks should be done by two different people).  Keep track of who your vendors and employees are.  Employees often issue checks to fake vendor accounts or fake employees and then redirect the money to themselves. Employees also conspires with vendors and adjusts shipment amounts in return for a kickback

Tip #3  INSTALL SECURITY CAMERAS  Security cameras these days are digital, have low light capability and they record to a hard drive.  You can even log in to the internet and watch from your home.  Make your employees aware of the cameras.  It can server as a deterrent.  They can also provide tangible proof after a theft.

Tip #4  KEEP EMPLOYEE RECORDS UP TO DATE  Especially current picture, phone number, home address and vehicle information.  This is especially important for workers’ comp claims. 

Tip #5  With Theft, be Wary of Employees:    

* Hard workers

* Well-liked

* Never take a vacation

* Come in early

* Stay late

* Viewed as loyal

* Living beyond their means

* And have been with you a long time (in other words, they’re the last people you’d suspect)

Tip #6  With Workers’ Comp Claims, be Wary of Employees:

* Injured on a Friday afternoon or Monday morning

* Known to be involved in outdoor sports on the weekends

* May have their own part-time business on the side (labor intensive like building decks, etc.)

* Are getting ready to retire or leave for another job