Protecting Your Business From Employee Fraud
Posted on: July 19, 2017 by Signature Insurance Group
Employee Dishonesty > Preventing Employee Fraud
When you hear the words “employee theft”, you may think of employees pocketing money from a cash register, or stealing company supplies or property. However, there is another type of employee dishonesty, and while it may not be as physical it is no less devastating to your business. Employee fraud comes in many forms, including embezzlement, payroll fraud, billing fraud, reimbursement fraud, and time fraud. These types of schemes can be difficult to spot quickly and can severely damage your company’s finances. Take a look at these statistics from a report from the Association of Certified Fraud Examiners and the 2012 Marquet Report on Embezzlement:
- The average organization loses 5% of its revenue each year to fraud, with the median loss being $140,000, but over 20% of cases having losses of at least $1 million.
- The average fraud case went undetected for 18 months.
- The longer the fraudulent employee had worked for the company, the greater the losses.
- Nearly 50% of all victims of employee fraud never recover the losses.
If left undetected, employee fraud could lead to the demise of your business. In addition to protecting your company with a Management Liability insurance policy that covers employee theft and fraud, consider implementing these preventative measures.
Supervise Your Employees
From the application process, all employees should be aware of your stance on employee fraud. Let them know that you will be taking actions to prevent it in your workplace and will not tolerate it, and create a formal company policy that details what will happen to an employee who is found to be engaging in fraud (they should almost always be immediately terminated) that will be made available to all employees. Provide anti-fraud training to all new employees (with the occasional refresher for older employees), perform surprise audits to discourage employees from dishonest behavior, and regularly examine your company and its practices in order to spot any potential points of vulnerability.
Pay Attention to Accounting, Payroll, and Finances
Around 68% of employee fraud incidents occur through employees in finance, bookkeeping, or accounting positions, and the most common form of embezzlement is via forged or unauthorized company checks. Because of this, it is absolutely imperative that you pay extra attention to this sector of your company.
One of the most important things you can do is ensure that no one employee is responsible for a large portion of your company’s financial dealings. IFPO recommends that you split accounting tasks among multiple employees; do not have the same employee responsible for accounts payable and accounts receivable, and do not have the same employee in charge of payroll and distributing paychecks. In addition, regularly look into your finances. Audit your books at least once per year, regularly check your invoices and purchase orders for missing documents, require that all checks above a certain amount have at least two signatures, and avoid using a signature stamp, as it can easily be used fraudulently.
Finally, while we encourage you to separate responsibilities among your accounting and financial employees, make sure that employees outside those particular departments do not have any access to accounting functions and financial information.
Allow Your Employees to Contact You
Occupational fraud is more likely to be detected by an employee tip than by any other method, so it is important for you to create an environment where employees feel comfortable coming to you with concerns over fraud. Create a positive work environment and get to know your employees: in addition to reducing the rate of occupational fraud, this will encourage your employees to come to you with concerns. If you are worried that your employees will not want to “snitch” on their fellow employees or fear retaliation, create an anonymous reporting method for your employees to freely express their concerns.
About Signature Insurance Group
Signature Insurance Group has been working since 1969 to provide comprehensive insurance solutions to individuals and businesses across the United States. We offer a range of insurance products and services in risk management, employee benefits, business insurance, and personal insurance, and we pride ourselves on our commitment to creating “Signature Relationships” with our clients where we commit to providing the best, most comprehensive service possible. To learn more about our goods and services, contact us today at (800) 464-3606.
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