Unfortunately, far too many small-business owners have a story to tell, one probably as old as commerce itself — an employee wrongfully takes something that belongs to an employer. But too often it takes being a victim for an owner to sit up and take notice. Don’t wait until it happens to you.
9 Tips for Preventing Employee Fraud
1. Credit cards. Limit the number of different credit cards issued in your company's name. Credit card offers are hard to refuse. Don’t keep signing up for special offers because it might benefit the company to rack up airline miles and other rewards for using multiple credit cards. How many credit cards do you really even need? Try to stick to one card if you can.
2. Checks and balances. Separate duties between employees. The person who is paying the bills should not be allowed to buy anything.
3. Be observant. Often embezzlers tell themselves it's "a loan" they'll pay back, but then it snowballs out of control. Observing doesn't mean accusing, of course. But if someone or something seems a little off, keep an eye on the books.
4. Dump the stamp. Sign checks personally, rather than having a signature stamp lying around. Also, don't sign checks without seeing the corresponding invoice. And avoid signing blank checks.
5. Audits. Do random audits of bank and credit card statements and question even small purchases you don't recognize. Thieves often test the waters with $5 and $10 purchases and then up the ante if no one catches on.
6. Fidelity bonds. Consider bonding employees who will be making purchases or paying bills. A fidelity bond is employee-dishonesty insurance covering a business in cases of employee theft or fraud. If a bonded employee embezzles, the payout received by the employer can be used to recoup some of the loss and to take legal action. Rates vary depending on how many employees are covered and amount of coverage, but according to the U.S. Small Business Administration, a fidelity bond should cost 0.5 to 1 percent of the coverage obtained, so at most a $1 million bond would cost $10,000.
7. Backgrond checks. Consider conducting criminal and credit checks on job candidates. Make sure this is legal in your state, however. Some states have outlawed this practice.
8. Work with your bankers. You may be able to provide them with a list of approved vendors so they can notify you if checks are written to anyone else.
9. Look at statements. Be sure to look at statements from vendors over a few months' time. If you notice all invoices from a single vendor are in numerical order without skipping any numbers, then you are their only customer; you are writing checks to a fictitious vendor; or they have an unusual accounting system that I'm sure they'd be happy to explain to you.
