Comentarios de lectores/as

How to Prevent Fraud & Employee Theft in Your Business – Policies & Plans

John Marsh (2019-06-05)

Prevent Fraud

Many small business owners feel that since they have got an intimate, close-knit operation, they are not susceptible to fraud when, actually, the reverse is true. By designing and implementing appropriate internal controls in your organization, you can discover fraud as it happens and stop employees from trying it in the first location.

Who Commits Fraud
While you might believe that fraudsters are hardened criminals who jump from job to job, the Journal of Accountancy reports that many people who commit occupational fraud are first-time criminals. Also, hardly any fraudsters take a job with the intention to defraud the enterprise.

It follows that diligent hiring practices and comprehensive background checks are not sufficient to stop fraud from occurring at your company. However, there are particular factors which make a person more likely to perpetrate fraud.

The Association of Certified Fraud Examiners contends there are three elements which are typically set up when fraud happens. The person committing fraud feels fiscal pressure -- high debts, a lavish lifestyle, family members with financial troubles, and gambling addictions are all possible sources of pressure.

Second, the person needs a way to rationalize the fraud. An inner monologue of"I am not paid enough," I work harder than the boss does," The firm won't ever overlook this," and"I deserve this" all help someone justify unethical behavior.

Lastly, individuals want the chance to commit fraud. While you, as a company owner, cannot always influence an individuals' financial situation or attitude, you can impact the chance factor with checks and balances and proper internal controls.

Typical Types of Fraud
1. Asset Misappropriation
Asset misappropriation occurs when an employee or contractor devises a scheme to steal or abuse company resources, such as inventory or cash.

Pay careful attention to the way your company collects cash from clients. If the perfect measures are not in place, somebody can intercept the money and conceal it from the operator.

2. Skimming
Skimming, a popular method to steal money involves stealing an incoming payment before it could be fully recorded in the business's financial records. By way of instance, say a customer wishes to purchase a product in a brick-and-mortar shop. A scheming sales employee could take the payment for the merchandise but pocket the money rather than recording the transaction.

With skimming, a worker can record just part of the payment -- for instance, recording just $50 paid when $100 was given -- or don't record the payment entirely. Since the sales transaction is not listed, the store's stock is not updated either. That means that the true business inventory will actually be smaller than what's reflected in the accounting records.

It is not just in-person transactions which are vulnerable to skimming. An accounting or clerical employee who receives client payments may also pocket incoming money. The worker can then falsify a credit memo or write off the accounts as uncollectible so the business does not notice that the payment is lost.

A complex but rather common accounts receivable skimming fraud entails lapping customer obligations. In a lapping strategy, a bookkeeper or accountant pockets the cash payment a client makes toward that client's account. To cover up the deficit, the accountant uses a payment received from another customer toward the first client's account. If the second customer finds an erroneous account balance, the accountant uses a payment by a third client to pay for the deficit -- etc.

Because payments are so mismanaged, someone always catches onto the scheme. However, fraudsters can maintain lapping schemes for weeks or even years without being captured.

Skimming Common Fraud
3. Cash Larceny
The difference with money larceny is the employee steals the money after it's been listed on the company's books.

By way of instance, an employee could steal cash from the cash register after a trade was recorded. The worker can record a fraudulent cash register disbursement to hide the fact that money is missing. By way of instance, an employee could void the last sale or issue a refund and take the corresponding cash from the register.

Skimming schemes that involve intercepting money before it is recorded can be difficult to detect. You will notice these warning signs:

Low Inventory. If real inventory in the shop is lower than what it should be based on the books, it is possible an employee is not recording all sales.
For restaurants and other businesses using pre-numbered vouchers, a gap at the vouchers might indicate an employee threw a receipt and kept the money.
Customer Complaints. If a worker is lapping payments, clients often call in and complain that their statement balances are not perfect.
If money collections are reduced whenever one particular employee is working, that may indicate cash theft.

Once someone else is involved in the trade, a devious employee has less chance to sneak unnoticed.
A worker is less likely to mess around with client payments if customers receive regular update of the account balance.
Institute Mandatory Holiday Time and Job Rotations. Lapping schemes fall apart fast when the guilty employee does not have the chance to move money around.
Play Surprise Cash Counts. By comparing money in the register to cash receipts, managers can spot money discrepancies quickly.
Video Cameras. Employees are not as likely to behave badly when there's a video camera tracking the registers.
Lock Boxes. By having client payments sent directly to a bank lockbox, money doesn't pass through worker's hands and employees do not have the chance to steal it.
4. Fraudulent Cash Disbursements
As opposed to raising money as it comes to the company, other fraudsters steal outgoing cash disbursements. Of all of the ways that workers and contractors misappropriate company assets, stealing money by producing fraudulent cash disbursements is the most widely used tactic.

5. Billing Schemes
Employees can bill for services and goods that the company never received and pocket the money. The worker falsifies invoices with made-up products or services and, once the check is disbursed, the fraudster cashes it himself. The worker has payment issued to a nonexistent seller, using the name of a shell company that the worker or a friend or relative owns.

Employees may also collude with a current vendor to overcharge the company for goods. In exchange for pushing through an inflated bill, the seller provides the worker with a cut of their profits.

Indications of a Billing Scheme

When one vendor's prices have increased at a greater percentage than the market norm, it might be that you are not getting a reasonable deal.
Employee Preference for Some Vendor. A worker who insists on a particular vendor or is not open to getting bids from different contractors could be getting a kickback.

Keep an Approved Vendor List and Just Write Checks to Approved Vendors. Before adding a vendor to the list, do some research and make sure that it is a legitimate business.
Together with an Approved Vendor List, Keep an Approved Price List. This makes it hard for workers to increase prices in collusion with sellers.
That way, you simply sign checks for goods which the company actually received.
6. Expense Reimbursement Schemes
Another way to get cash from a business is to fudge expense reports. Employees can find an unnaturally large settlement check with the addition of private expenses, nonexistent expenses, or inflating expenses on an expense reimbursement request.


If a specific employee expense reports are higher than historic averages or other workers' reports, it is a sign that the employee is spending too much.
Employee Does Not Submit Receipts. When original receipts are not attached to the expense report, you will never know whether the worker actually incurred the price tag.

If you do not, workers may add on expenses which they never actually incurred.
Document Your Business's Expense Reimbursement Policy. In it, be clear about which kinds of expenses may be reimbursed and what is not suitable for reimbursement. Give a copy of the coverage to all employees.
Compare Expense Reports of Employees Who Went on a Particular Trip. If one is higher than the others, that is an indication that expenses are inflated or the worker is overspending on purpose.
Expense Reimbursement Schemes
7. Check Tampering Schemes
If blank checks are not kept protected, someone can steal a few and make them out to themselves to a friend. A bookkeeper who pulls up checks for a business owner to sign will later change the name on a check, intercept it, and money it himself.


Gaps in Check Amounts. When there's a sequential gap on your numbered blank checks, then it is possible that someone lifted a few.
Vendor Complaints. When a seller informs you that it has not received payments though you cut the check, the payment might have been intercepted.

Maintain Blank Checks Secure. They ought to be locked up in your workplace at all times. Do not discuss your key, and just produce the checks once your accounting staff is ready to print them.
Review Your Business Bank Statement Each Month. Ask your lender to include a picture scan of cashed checks so that you can ensure they were not tampered with before endorsement.
Even if your money is protected, employees can figure out ways to steal or abuse physical assets such as computers, business products, and inventory.

Receiving Schemes
Workers involved in the receiving process can steal products or inventory at the point of delivery. The scheming employees may alter the incoming delivery report and the firm receiving report to conceal the fraud. If those workers also have access to buying records, they can change the purchase requisition to coincide with the fake shipping reports.

9. Asset Larceny
If there are not many physical controls in place to track resources, employees and contractors can simply take business property from the premises rather than return it.


Low Inventory. If stock per the books is greater than actual stock levels, someone could be stealing.
If supporting buying and receiving documents are not the originals or seem to have been altered, you might be dealing with the work of a burglar.

Play Random Inventory Counts. This will tip you off to stock shortages and make workers less likely to slip.
The same person should not be accountable for both buying products and receiving them.
In particular, track the rooms and areas where valuable and inventory products are stored.

More Tips to Avoid Small Business Fraud
Furthermore, there are general strategies you can use to prevent fraud. By changing how you manage and how you delegate jobs, you can decrease the chance that somebody will defraud your company.

1. Know Your Employees
Cowan, Gunteski & Co., a CPA firm, notes you could nip possible fraud in the bud if you are aware of changes in workers' behavior and attitudes. Check in with your workers occasionally and take some opportunity to talk about how things are going.


Experiencing financial difficulties or having difficulty making ends meet


Naturally, you don't even need to assume that workers are stealing just because they are exhibiting a number of these traits. Nonetheless, if you suspect that fraud is occurring, you can concentrate your observation and fraud prevention efforts toward sections and regions where high-risk workers work. Try to help out staff members that are stressed out or struggling financially in any way you can -- you will retain more employees and build employee loyalty.

2. Manage With Integrity
How you act as a company owner can impact your workers' attitudes concerning theft. If you cut corners and do not act ethically, the men and women working for you're prone to do the same. Conversely, if you make a concerted effort to be ethical and honest in your business transactions, employees will realize that the identical behavior is expected of them.

Create a code of conduct that outlines the sort of behavior you expect of everyone in your company. Additionally, make it clear your door is always open to workers who wish to share their concerns about company operations.

3. Segregate Duties
To put it differently, one person should not be responsible for a lot of jobs that fraud could be committed and covered up without the owners' knowledge. To eliminate opportunities for fraud, no individual should have custody of assets (such as money and precious products), the capability to record or change accounting information about these assets, and the ability to authorize transactions about the resources.

Segregating duties is catchy in a small business as you just don't have enough people amongst whom to split the tasks. Nonetheless, there are steps you can take to divide key functions with just a couple of employees.

By way of instance, state that you and an office manager would be the only two employees in your company. Although your office manager may have access to undeposited funds, reconciling the bank statement and generating invoices and bank deposits, you should be the person who reviews the bank statement, opens the email, reviews trades, and approves credit memos.

This requires some responsibility off your plate and makes it tougher for your office manager to conceal stolen payments.

Final Word
Implementing internal controls is a crucial part of protecting your enterprise. However, it may be awkward to do in training.

Employees and contractors might not understand why their responsibilities are changing. Communicate with your employees that the controls are in place to protect themes employees and the small business. Engage them in the process of enhancing business security and request their input on a regular basis. As the individuals performing the daily work, they could have insights on particular processes which may enable you to improve the controls. They can also allow you to know which controllers are working well and which are not.

Have you ever owned or worked in a company where somebody committed fraud? How did it occur?

Licencia Creative Commons
Los trabajos publicados en esta revista están bajo la licencia Creative Commons Atribución-NoComercial 2.5 Argentina.


Información, cultura y sociedad. ISSN 1851-1740. Instituto de Investigaciones Bibliotecológicas ( / /, Universidad de Buenos Aires. Facultad de Filosofía y Letras. Puán 480 - Piso 4 Of. 8 (C1406CQJ) - Ciudad Autónoma de Buenos Aires. República Argentina