We already looked at a profile to help identify thieving employees. Now let’s talk about prevention.

That Won’t Happen in My Company!

The first hurdle you need to overcome is this mindset. It’s why so many thieves get away with stealing so much for so long. Here’s the difficult truth:

  • “One out of three business failures each year trace back to employee theft or other employee crime.” U.S. Department of Commerce
  • “Firms with under 100 employees suffer higher losses.” Association of Certified Fraud Examiners
  • “Some estimates say 5% of revenue is lost each year.” Association of Certified Fraud Examiners

There are three common ways your business could be a target:

  • Larceny – the outright stealing of property or cash
  • Skimming – when cash is removed before it is recorded in the books, such as employees pocketing cash sales, or phony accounts receivable write offs
  • Phony disbursements – fake payroll (such as employees who don’t exist or double-paying those who do), fake vendors (invented invoices) and inflating or duplicating expense reports

An Ounce of Prevention

You want to make it hard to steal. Here are some common sense best practices for financial control.

  • Have more than one person deal with cash and bank deposits. Between the time the customer gives you money (especially cash) and when you deposit that money into the bank, several people should handle and count the funds.
  • Retail businesses: do daily cash reconciliations. Most cash register software offers this process, so you can see what’s been rung up through the machine with the cash and checks on hand. Use it!
  • No single staff member should be in charge of all cycles. The person who does billing shouldn’t be the one who takes the money to the bank. And another person should be paying your vendor bills. If your staff is small and this isn’t practical, then have people regularly rotate through these functions.
  • Account for all checks by tracking all of the numbers on them. QuickBooks can even alert you when numbers are out of sequence.
  • Throw away your signature stamp. This is a tempting time saver. But it also tempts the unscrupulous. One of your simplest financial controls is to be the person who signs every check.
  • Create a culture of “trust but verify.” It’s OK to turn over most of the payroll functions to your office manager—but always review every payroll report. You want employees to know that you trust them to behave honorably and that you will check their actions. Confirm the receipts on their expense reports. Make unscheduled audits and reviews of inventory and bookkeeping records. Enforce mandatory vacations. Oversee cross training and job rotations.

Fraud prevention companies often cite the 10-10-80 rule: 10% of employees will never steal, 10% will always steal, and 80% will go either way, given the opportunity. Taking the actions mentioned here can remove those tempting circumstances, keeping money and other assets in your coffers.

Wishing you lots of positive cash flow.