How To Prevent Your Investment From Employee Theft
Employee theft is one of the most serious problems facing business owners in the US. According to the National Federation of Independent Business (NFIB), an employee is 15 times more likely to steal from an employer. And employees account for an estimated more than 44% of theft losses at stores. However, the US Department of Commerce reports that nearly a third of business failures are related to employee theft or fraud. In this article, we discuss how to prevent your investment from employee theft.
Business owners are rightly concerned – or should be.
Employee Misdeeds Take Many Forms:
- Larceny (outright theft)
- Skimming (diverting business funds)
- Fraudulent disbursements: billing schemes, and check to tamper
- Embezzlement of funds and raw materials
- Stealing business opportunities (misappropriation of customer lists).
Companies that ensure small businesses against fraud have become alarmed by the losses and become even more vigilant. Employees have worked at a business for several years before starting to steal an average of three years. That’s a lot of time to generate losses for the business.
Know Your Employees
- Be alert to key indicators of potential theft:
- Sudden, apparent devotion to work.
- Lifestyles well above salary.
- Strong objections to inventory or supply matters.
- Drugs and alcohol abuse.
- Moonlighting with materials.
- Evidence of bad check writing.
NFIB recommends background checks on potential hires, and checking references is one important step. But for employees entrusted with handling your money, a background check is better.
Background checks
Supervise employees closely. Not surprisingly, studies show that when supervision is lax, theft goes up. This means checking what they do, and it is also wise to have more than one person looking out for your money.
Use purchase orders. The payment and preparation of purchase orders should be handled by different individuals. Use serially pre-numbered purchase orders and verify incoming orders.
Control cash receipts. Use serially pre-numbered sales slips and register receipts should be done by someone other than the sales clerk.
Use informal audits. Make unannounced internal audits.
Install computer security measures. Understand your computer software, and how it might be used to divert money. Restrict access to computer records and check regularly to ensure that security procedures are in effect.
Track your business checks. Always use pre-numbered checks, with amounts written in permanent ink. However, producing all checks from financial software is highly recommended. Lock blank checks in a secure place.
Manage inventory. Use separate receiving and shipping functions. Physical inventories should be done by individuals who are not responsible for inventory records.
Beware of accounts receivable. Make mail-opening and posting separate. Record checks and stamp checks for deposit only.
Provide a way for employees to report theft. This needs to be done carefully as it can be highly effective.
If you suspect a problem:
- Be extremely careful about making accusations – a false accusation can result in a lawsuit against you.
- Verify suspicions by the investigation, and determine the extent of the fraud. If you can identify the employee, then consider further legal action.
- If it is a complex issue, consider finding additional experts such as forensic investigators.
This brings us to the end of our discussion on how to prevent your investment from employee theft.
