Fraud in the workplace (occupational fraud) is a major threat to small businesses. Very Small Organisations appear to suffer the most. A reason for this is a lack of anti-fraud controls incomparison to large businesses, making these businesses exposed to fraud.

So what should a business owner do?

1. If an employee has worked for you for a long-time and is a trusted employee don’t think they would not commit fraud. People’s decision to commit fraud is not always the first choice but is many first time offenders result of having no other option. Over half of workplace frauds are committed by employees with six or more years of tenure with the company and no criminal history. Furthermore, the longer a fraudster has been with a company and the higher their position, the larger the losses.

2. Know what the most frequent fraud schemes are.  The most popular asset misappropriate schemes are (in order of frequency, per their study): fraudulent billing schemes, noncash misappropriations (such as stealing inventory), skimming, expense reimbursement fraud, and misappropriation of cash on hand.

3. Setup policies and procedures to help deter and detect any fraudulent activities. One of the most effective ways to deter and detect fraud is regular review of cheques written on the company’s bank account. Many banks no longer provide cancelled cheques with their bank statements, but the cancelled cheques can usually be reviewed online. Review these cheques regularly noting:

  • The payee-is this a vendor or payee whose name you recognize?
  • The amount-is the amount being paid to the individual reasonable? Take the time to trace some of the payments to invoices received from the vendor or expense receipts submitted by employees.
  • The cheque signer-is the person who signed the cheque authorised to do so? Is the signer different from the payee? No employee with signature rights should write a cheque to themselves or to “cash.”

Also, check the bank statement for any unauthorised transfers or cash withdrawals. This review is one that should be performed by the business owner or someone familiar enough with the business to recognise misappropriations. It should not be delegated to an employee with cheque signing ability, ability to access the accounting system, or an employee who authorises expenditures.

4. Review charges by employees to corporate credit cards and insist on receipts. These receipts should be matched to the credit card statements and the receipt should be itemised. Often stores give us the receipt with the total and our signature and, in addition, an itemised receipt that shows what was purchased. Both those receipts should be kept to support the charge. Make sure employees with credit card privileges know what they can and cannot purchase with the credit card.

5. Consider creating a system by which employees can make anonymous tip offs. Something as simple as a locked suggestion box would work. The most prominent method by which fraud is detected is through tip offs.

6. Set a good example. We have seen numerous situations where an employee misappropriated assets through fraudulent expense claims, credit card abuse, and outright theft of cash because they saw the business owner committing fraud. Your employees need to know that you run an honest business, follow good accounting principles, and adhere to tax laws. If they work for an employer who plays fast and loose with the business’ cash, the accounting records, and tax laws, it is easier for them to justify their own fraudulent behavior.

We are amazed by the amount of businesses that do not even have the above tips in place. We have found that business owners feel awkward putting  procedures to prevent fraud in place especially if the business is a small familiar unit. Your employees must respect your procedures and understand that it is more to safe guard and quickly eliminate any innocent individuals.