Prevent Employee Fraud: 4 Tips
 By Terry M. Blair

Every year businesses across the country lose billions of dollars to employee fraud.

When employee fraud is discovered at big companies, the event might make the news headlines. But, small businesses are just as much at risk.

Don’t let your small company become a statistic. Follow these four tips to protect your financial assets.

1. Screen Job Applicants
You can stop fraud before it starts by hiring the right employees. And you can increase your chances of hiring the right employee by performing background checks on job applicants.

Of course, any applicant who will handle money should be screened. So should candidates who will have access to your bank accounts and credit cards. But to be safe, screen all job applicants.

When performing background checks, be sure to verify areas such as:

• Job history

• Education

• Professional and personal references

But, you’ll also want to check an applicant’s criminal history, motor vehicle violations and possibly even their credit.

Before performing any background or credit checks on an applicant, be sure you comply with all legal requirements for obtaining the applicant’s consent.

Or, make it easy on yourself by using e-Check Online, a background screening service available to AFS Members. You get up to 50 percent off traditional market prices on pre-employment background screening services that include:

• Criminal history – by county, state or nationwide

• Motor vehicle report

• Social Security verification report

Plus, you can choose from many more reports and screening tools – without any startup fees or contracts. E-Check Online can even tailor a screening program specifically for your company’s needs.

2. Develop Internal Controls
Keep a close eye and firm hand on all of the financial dealings conducted by employees.

Don’t depend on one employee to handle all of your money matters. Spread the jobs around to reduce the risk of fraud.

One person might handle invoicing, processing payments and making bank deposits. Another might be in charge of petty cash and making purchases with checks or credit cards. And every so often, rotate those duties to another employee.

No matter how busy you get, review your bank statements every month. Look specifically for checks written to cash, other employees or suppliers you don’t recognize. Reconcile your statements each month.

Here’s a tip from the New Jersey Society of Certified Public Accountants: Insist that all employees, especially those with financial responsibilities, take a mandatory annual vacation of at least one week of consecutive days. Dishonest employees will often resist taking a vacation out of fear that whoever does the job in their absence will uncover the fraudulent activities.

3. Guard Your Credit Cards
Many small-business owners issue company credit cards to employees. The cards come in handy when purchasing gas for company vehicles or office supplies.

But those cards can be an invitation to fraud.

“Make sure you know where all your credit cards are at all times,” says David E. Hess, a certified public accountant and a certified fraud consultant at the Hunter Group CPA in Fair Lawn, N.J. “Inspect your credit card statements carefully. Watch for suspicious transactions. And keep a list of all your credit card numbers in a very secure location. Include the customer service telephone numbers that you would have to call, in case a card is stolen.”

4. Set Standards
In your company’s written policy manual, include a section about what actions are considered fraud and what actions will be taken if an employee commits fraud.

Make it clear that your small business has zero tolerance for any type of employee theft.

Then, stick to your guns. If you suspect fraud or theft, conduct an immediate and thorough investigation. Follow through by taking appropriate action with any employee found guilty of fraud.

(Posted February 2008)

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