Many small business owners find theft and fraud after the damage has already been done. It is estimated that nearly a third of business failures in the U.S. are the result of employee theft and fraud.
The problem is that many small business owners just don’t have the resources and time to devote to high levels of oversight. So we have some effective suggestions that employ outsourcing, sampling and communications.
- Always conduct background investigations. An adequate screening of this nature usually costs less than $75. Frankly, the biggest thing we see is where individuals falsify information they have entered on our clients’ applications. Currently, there is no court in the land that will challenge an employer’s right to withdraw a candidate because of falsification. Always comply with applicable ban the box regulations on your application. We help many of our clients with making decisions based on the existence of criminal convictions. You need to keep in mind applicable aspects of recent EEOC guidelines. Prior employment verifications are crucial in finding employment gaps and misstatements of prior job responsibilities. We believe that people, in general, do not change behaviors. They will behave for you as they have behaved in the past. This process is usually not a STOP or GO process. You are finding information that will help you make as good a decision as possible.
- Supervise staff with the knowledge that it is not always going to be the newest employee that will steal from the employer. Often, fraud is committed by employees who have been employed the longest time and/or the one who takes no vacations. Long term employees may feel entitled because of the many years of loyalty or their compensation is not as high as they think it should be. One suggestion is to just monitor their duties on a random basis. Instead of thinking you have to watch everyone all the time, pick a department and visit the workers once a month. This will establish a relationship for better communication. And, you can work on establishing metrics for their performance and then monitor these metrics.
- Beware of warning signs of financial difficulty. As long as the position justifies pulling a credit report, it is a good practice to periodically review this report. It can highlight an employee who is having financial difficulties. We are not suggesting you fire them if they are having financial difficulties. But, it can establish a reason for a discussion. Then you can both decide whether or not take further action. It can be something as simple as having a program where employees in financial difficulty can access the services of a financial planner.
- Use your outside accounting firm to help you establish checks and balances. For example, it can be something as simple as you, being the owner, receive and review bank statements for any irregularities. You should receive the bank statement before it is received by your personnel involved in the financial area. And, you don’t have to do this every month. As suggested earlier, do this activity once every couple of months.
- You should establish an anonymous tip line. This will make it very easy to allow employees who wish to report fraudulent activity without fear of retaliation. If you can’t afford a tip line, then make yourself very accessible for being contacted by anyone who wishes to report fraudulent activity. But, you should do this with the utmost care i.e. the investigation should then be conducted by someone outside your firm that you trust. This can help avoid inflammatory accusations or threats. You can maintain an independent view point by having a professional do the investigation. This latter step can be made very effective if you, as the owner, have established a trusting relationship with your employees.