Employee Fraud

This is such a sensitive topic to discuss about as the thought of acknowledging that someone you hired is committing fraud against your business is difficult to take. Business owners are often laid back on implementing fraud prevention programs, most often citing cost reasons, while others hold their collective breath, hoping and praying that somehow they miraculously avoid this employee misconduct all together or worse they are totally convinced that don’t have any employee fraud problem.

According to the 2012 Report to the Nations on Occupational Fraud and Abuse from the Association of Certified Fraud Examiners, companies lose 5% of their annual revenue due to employee misconduct. Last year alone, the median loss related to fraud cases in the workplace was $140,000, with more than one-fifth of those victimized companies seeing losses totalling at least $1 million dollars.

Fortunately, there are effective and affordable ways to reduce your risk of exposure. I have put together an 8 point program for business owners to follow in order to identify cases fraud might occur, more importantly to prevent it and educate your employees about its importance. Let me go straight into these programs:

Know your Employees: Getting to know your employees is very vital,engage them in conversations and through that, you may identify potential opportunities and risk for fraud. So from employees talking about issues such as his spouse just lost her job or an issue in the family that might create financial difficulties or if there are personal issues within the family, all those issues may be indicators for creating opportunities for fraud.

Employee Awareness: This actually starts with the hiring process, conduct background check on any potential candidate, search the person’s name on google, facebook and twitter just to see if there are any information out there, you would be surprised about the amount of information out there on the internet. This could also mean establishing set written policies for your employees, let them know you consider it a serious offence and would take serious actions if any employee violates your policy. It is important for business owners to communicate this very often to their employees.

Segregation of Duties: This is very key for reducing your exposure to fraud, you don’t want the same person to open the mail, reconcile the cheque book, make the cash deposit and pay your vendors. This would create an environment for potential fraud.

Mandatory Vacations: Most often, employees who perpetrate fraud will be unwilling to take time off work as what they are doing may be uncovered when they are gone, so it’s important to ensure employees take their vacations.

Train your Employees in Fraud Prevention: Employee tips are one of the common ways of detecting fraud, training your staff on basic fraud prevention techniques and what to do when fraud occurs will help you establish a first line of anti-fraud defence.

Carry out Employee Surveys: Asking employees how they feel about their employer is an excellent way to assess employee satisfaction and uncover possible opportunities for fraud. When used correctly, employee surveys can improve morale and help employees feel involved and in control of what happens to them in the workplace.

Establish a Hot Line: Setting up employee hotlines makes it much easier for your employees to report situations that may be going on, this also demonstrates your company’s commitment to ethical behaviour which in turn reduces the risk of fraud. “The ACFE emphasizes that employee hotlines are the most common way companies root out fraud, even though employees may be reluctant to use them to tattle on their bosses (and hence the reason that executives are able to hide it longer; lower-ranking employees tend to be able to hide for only a year). Perpetrators who have higher levels of authority are in a better position to override controls or conceal their misconduct, according to the ACFE report”.

Hire Experts. I can’t emphasize this enough, but typically the business is the biggest asset a business owner has and they do things to protect it but they don’t invest money to protect it against fraud. If you think you have uncovered a case of employee fraud, it is wise you speak to an expert such as a Certified Fraud Examiner about it, as they would give you an objective view of the matter.

This list is not exhaustive, if you want to know more about this subject matter, please get in touch with me via email (contact@emgfraudconsulting.co.uk). I would be happy to do a seminar on this or related topic in your organisation.