There are many types of fraud committed against businesses — from workers’ compensation scams to complex corporate swindles — but one of the most common types is simply employee theft.
This can occur when employees take money from a cash register, forge names or change amounts on company checks, engage in creative bookkeeping a number of other schemes.
The Fraud Triangle
Certain situations drive some people to steal. It’s sometimes called the “Fraud Triangle” and it generally contains three elements:
Pressure. This is often financial stress with the individual unable to share the problem and seeing no effective, legal way out. It may be combined with job dissatisfaction, drug or alcohol abuse, or failure to meet company requirements.
Opportunity. If employees perceive there is a chance to steal and they are under pressure, they may try it, particularly if they think they can get away with it.
Rationalization. These employees believe stealing isn’t really wrong. Excuses range from: “It’s a loan.” to “I’m not taking anything that will be missed,” or “everybody else does it.”
A Few Warning Signs
Lifestyle changes. Suddenly, an employee has a new, big home or an expensive car.
Unusual behavior. Nice people may become belligerent and vice versa.
Reluctance to delegate. Employees who are stealing often work extra hours rather than delegate responsibility out of fear of discovery.
No matter how profitable your company is, you can be vulnerable unless you thwart these attempts. While there’s no single deterrent to internal fraud, you can take some relatively simple steps to help detect and prevent it:
10 Smart Internal Controls
1. Enforce mandatory vacations.If employees don’t take time off that is due to them, a red flag should be raised. Someone may not want to go on vacation because he or she can more easily cover their tracks while on the job.
2. Consider having payroll checks be signed personally. This can take some time and is impractical for large companies, but it allows management a chance to give payroll a quick review.
3. Use a dedicated payroll bank account and deposit the correct amount for every pay period. This can help your company immediately recognize any changed amounts. However, this also requires close attention to details like overtime and withholding so that the account doesn’t fall below the bank’s minimum balances due to legitimate changes in payroll.
4. Use a “for deposit only” stamp on all incoming checks, which can prevent employees from cashing them personally. Don’t rely solely on this, however. A bank teller still might allow the check to be cashed. Consider accepting electronic payments to prevent employees from cashing incoming checks.
5. Monitor receivables and payables. Investigate discrepancies.
6. Do not let the same person who handles revenue or opens the mail also handle disbursements.
7. Reconcile your company’s accounts at least monthly, examine anything that doesn’t balance or otherwise looks wrong.
8. Compare checks to the company cash disbursements journal. Make certain that payees on checks match payees shown in the journal. Confirm that the names and amounts on checks are consistent and believable with your company’s practice.
9. Secure your offices whenever you leave. Periodically change the locks on doors and file cabinets. Change computer passwords regularly, especially after someone leaves the company on bad terms.
10. When feasible, rotate the duties of those who handle money, record sales or disbursements, and otherwise have opportunities to steal from the company. Be cautious of people working in teams that could potentially defraud the business.
The bottom line is to protect your bottom line. These are just some of the steps your company can take to safeguard its assets.
Establish a Whistle-Blower Program
|This can be set up and handled through a third party. Employees might be reluctant to notify someone directly in the company about fraud or theft for fear that the information will be traced back to the source. A third party can provide anonymity and immediately forward information to the company.|