Preventing Internal Fraud in Your Business


Preventing Internal Fraud in Your Business

Companies of all sizes lose billions of dollars every year due to employee fraud. Whether it’s giving discounts to friends and family, or stealing funds directly from the company, internal fraud eats into a company’s profits and can be difficult to detect.

Internal fraud, believe it or not, is more common among small to medium-sized businesses due to the fact that companies of this size typically don’t have the security infrastructure in place to prevent it. Below are a few tips that can be useful to the entrepreneur in protecting themselves and their assets from unscrupulous employees.

Hire Carefully

The first place you’ll want to work to prevent fraud is in your hiring process. Before offering anyone a job, you need to know as much as you legally can about them – especially if they’ll be doing something involving money coming in or going out.

“Traditional job applications have spaces for work history and references for a reason,” says Ken Collis, founder and CEO of TLK Fusion Marketing.
He continues, “Call and speak with their references and check out their prior places of employment. You never know what you’ll find out just by talking to someone for a few minutes.”
Additionally, pay close attention to the dates a person claims to have been employed. If there are significant gaps in their work history, be sure to ask them why. Sometimes there are good reasons for these gaps in employment, but sometimes it’s because the person is trying to keep you from knowing all of their prior work history.

Don’t be afraid to conduct background checks on prospective employees, especially if they’re going to be in positions of power and trust within your business. Omitting some unfavorable work history is one type of application fraud that people have been known to commit, while not stating that they have a criminal record is another type of fraud – one that you’ll want to be aware of.

John and Donna hired a server for their restaurant because she seemed perfect for the position. Her application indicated several places of employment over the years in the hospitality industry. During the interview, the woman seemed amiable and outgoing. She seemed perfect for the job.

After hiring the woman, Donna began to notice behavior that made her uncomfortable. She ignored it thinking it was “just her.”
One day, the new server cornered Donna in the kitchen, telling her she new she was being imprisoned by John and that she was there to rescue her. Donna screamed and before help came the woman was gone. To make a long story short, the woman, who turned out to be schizophrenic, stalked Donna for 10 years until the woman’s untimely death.
Had they done a background check, Donna and John could have saved themselves the tremendous anxiety of this situation.
Utilize Internal Controls

Structure your business in such a way that one person doesn’t have too much power. You don’t want the same person writing checks who processing incoming payments, nor do you want the person processing incoming payments to be making deposits. “Limit the number of people that have access to blank business checks, and make sure to periodically check to see that nothing looks out of place,” says Ken Collis.

TLK Fusion Marketing recommends that you should take a look at every outgoing check and make sure its number and amount match up. If you notice that the check number tends to skip one once in a while, that’s a red flag.

Enact Anonymous Reporting

It shouldn’t be difficult for your employees to let you know if something may be going on. Instituting an open door policy between you and your employees can help foster healthy communication within the company. However, not everyone is comfortable “ratting out” someone else – especially if they aren’t sure there’s actually anything going on in the first place. As such, providing a safe, anonymous way for an employee to notify you of potential fraud going on can help people come forward who may otherwise be hesitant to do so.

“If you really want to make it easy for an employee to report possible instances of internal theft, don’t just institute an anonymous reporting policy. Offer a reward for coming forward with any information leading to the discovery of fraud going on in the company,” says Ken Collis of TLK Fusion Marketing.

Of course, in order to get the reward, the employee won’t be able to remain anonymous indefinitely. That’s why you should ensure all employees know that reports of possible theft, whether it turns out to be real or not, are completely confidential.

Audit Regularly

If you have the capital to do so, work with a CPA to regularly audit your business. The audits all shouldn’t be scheduled. Some should come as a surprise. More often than not, theft is a crime of opportunity. The more comfortable an employee is with knowing the ins-and-outs of how your company operates, the more comfortable they’ll be with trying to steal. However, if they know that their department could be audited at any moment, they’re far less likely to take the chance.

Train Your Employees Well

Your employees make your company vulnerable to internal theft, but they’re also critical when it comes to protecting your business from external theft. Ken Collis says TLK Fusion Marketing believes new hires should be thoroughly trained in how to identify and avoid online and offline threats, and make sure that all employees get a refresher course periodically. Institute policies in your business that will help guide employees in doing things in a way that minimizes your business’ vulnerability to both external and internal theft.

Ken Collis

TLK Fusion Marketing.

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