Reduce the Risk of Employee Theft

Fraud Alert: Tips to Reduce the Risk of Employee Theft

Even if you do your due-diligence to ensure that you are hiring good employees, don’t be fooled into thinking that your business is immune to theft and fraud. As a business owner, it is important that you are taking a proactive approach to protect your assets and reduce the risk of theft in your organization.

Are You Encouraging Theft?

It might be hard to believe that one of your employees would steal from the company. But, theft happens every day. In some situations, business owners aren’t preventing fraud proactively. In other situations, business owners might be unknowingly encouraging their employees to steal from the company.

When you are missing regular checks and balances, then it leaves gaps in the system, often creating open doors of opportunity for people who are looking for an angle. If you don’t have adequate oversight in place, then you could be unintentionally encouraging people to take advantage of the system

How do these problems occur? Every business owner will adamantly argue that they aren’t leaving these doors of opportunity open. But, there are often small situations that are overlooked, where an employee can skim a little (or a lot!) of money from the company. For example, a cashier might see that an error in the cash reporting wasn’t noticed by management. Or, a person over accounts payable could create a fake vendor account if no one else is checking the transactions that are moving through.

Employees know when they are being monitored, so they will stay within the lines when management is watching. But, if people suspect that mistakes and small problems are slipping through undetected, then they might be tempted to take advantage of the situation.

Honest Employees Can be Tempted By Weak Points

One of the biggest mistakes that you can make is running a background check when you hire an employee… and then assuming that a clean record means that you can trust the person. It is possible that they have committed theft in the past, but they were never caught. Or, a seemingly honest person could be tempted by an easy opportunity that is presented in the workplace.

Obviously, most employers would be hesitant to hire hardened criminals. But, they never expect that a person without a criminal record might complete fraud. Whether the employee is driven by financial stress at home, or they want to pad their bank account, money can make people do unexpected things.

In some situations, the employee might be dealing with a stressful situation such as an unemployed spouse or unbearable medical bills. These stressful life situations can drive people to make choices that are out of character with their regular actions. Financial needs can challenge the morals of even the best people.

Reconciliations and Audits

It is a big mistake to have one person working on accounts without checks and balances in place. Regular reconciliations are important to reduce fraud so that that small errors can be detected as soon as possible. When employees know that reconciliations will be done, it reduces the risk that they will try to steal from the company. So, let employees know that management is always overseeing the work that is completed.

For example, you could have someone completing the bookkeeping tasks on a daily basis for your company. But, make sure that you also have an accounting team to reconcile the financial reports. These reconciliation activities should be completed on a regular schedule, such as once a month. It is also a good idea to have unannounced audits for routine checks of the financial accounts.

What types of audits or reconciliations should you be using? Your accounting team can make recommendations to match the needs of your company. These tasks might include:

  • Authorizing transactions
  • Counting cash
  • Reviewing transactions
  • Comparing account balances
  • Looking through financial documentation
  • Balancing the accounts and transactions
  • And more

It isn’t necessary to implement an elaborate reconciliation system that is difficult to manage. Instead, make sure that you have multiple people reviewing the information to identify potential discrepancies. These checks-and-balances can go a long way to help you avoid financial problems in the future.

When employees are informed that their work is going to be checked, then they will be more thorough in accurately completing their tasks.

Setting Up Security Systems in the Office

If you want to reduce the risk of theft, then the first step is to set up security systems that monitor the movement in the office. When employees know that they are being monitored, it will reduce the risk that someone will try to pull a stunt in front of the camera.

Physical security might seem like an expensive cost, but it is worth the effort if you can save thousands of dollars in fraud.

Compare the risk of these two companies:

  • Company A leaves the doors unlocked throughout the day, there is no security system in place, and financial information can be obtained Lapses in security create a situation where someone could steal financial details without being detected.
  • Company B has security cameras, badge-entry doors, and managers on-site to oversee daily activities. This situation reduces the opportunities for someone to make a move without it being recorded by management.

Entrances and rooms with sensitive information need to be under lock-and-key. You might consider a key card system that records the movement of employees in and out of the room. These details can help you know who is accessing the areas, pinpointing the source of the problem if anything occurs.

Digital Security

Technology can be a great tool for your business, but it can also open up a host of security issues if you aren’t careful. An employee with access to online financial accounts could make a few small changes that go undetected. Even if your employees are honest, you could be at risk of outside hackers who want to steal information from your company.

Be careful about managing the credentials for computer systems that hold sensitive information. Hire an experienced digital security team who can encrypt information as needed. If employees have access to these areas, then they need to lock their computer before walking away from their desk. These security measures can keep your online information protected so that you can avoid digital theft.

Taking Action When Something Happens

In the unlikely case that something goes wrong, it is essential that you respond quickly to stop the problem. Other employees will see that you dealt with the fraud right away, setting the tone so that people will know what to expect if they make the same mistakes.

Be clear about the company discipline guidelines, and don’t be shy to take action if fraud occurs. Even small instances need to be handled efficiently because these small things will likely lead to bigger issues in the future.

A clear-cut policy will communicate that you are serious about fraud prevention. Discipline is a way to show that you will follow-through with the policy as needed. If an employee is fired for fraud, then you should tell employees what happened and be clear about the punishment that was given. Be careful to protect information that can’t be shared because of laws in your area. For example, you might not have the liberty to share details of the case or the identity of the person who committed the fraud.

Consistency in the implementation of your fraud policy is important. Make sure that you are dealing with employees in the same way, without discrimination. For example, if two employees make the same mistake, then they should receive the same punishment. This fairness will show that the policy is implemented regardless of the extenuating circumstances.

Talk to an Accountant to Implement a Strong Financial System

The best way that you can prevent fraud is to ensure that you have an experienced accounting team overlooking the financial details of your company. An outsourced accounting service can offer third-party oversight, reducing the risk that an internal problem will go undetected.

A conversation with your accountant can be a valuable way for you to learn about the potential weak points in your accounting system. Then, you can make a few changes or adjustments as needed to fill in the gaps and prevent those issues from blowing up in the future. Prevention is the best approach to mitigate your risk and avoid a headache later on down the road.

Your business doesn’t need to be at risk for fraud! A few small changes in your financial systems can go a long way to keeping your business protected. If you haven’t already put a system in place to protect your business interests, then right now is a great time to talk to our team here at Easier Accounting. We will gladly evaluate your finances and make recommendations about the best ways that you can prevent internal and external fraud.

Contact us to learn more about all of the accounting services that we offer. We are here to help with anything that you need: (888) 620-0770

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