How to Prevent Employee Fraud
Part of the Forensic Accounting For Dummies Cheat Sheet
Businesses lose huge sums of money each year to fraud committed by their employees. Small businesses and large businesses alike must establish strong internal controls to prevent employee fraud, whether it involves employees stealing company inventory, embezzling cash, or fudging expense reports. Here are some crucial steps a business can take to deter employee fraud:
Set the right tone from the top of the company. Make sure company managers and board members act honestly and (as much as possible) transparently. If employees suspect shady dealings at the top of the company, they're more likely to justify committing fraud themselves.
Establish a segregation of duties policy. Keep accounting tasks and the handling of cash or business assets completely separate. Someone who works a cash register or books checks received in the mail should not also be tallying accounts receivable in the company's financial reports.
Establish strict policies for accessing company assets, such as business inventory. That way, if inventory starts disappearing, you have a clear list of candidates for the theft.
Require more than one signature on transactions of a significant amount. Depending on the size and structure of your business, that may mean that checks over $100 or over $1,000 require two signatures from company managers and/or board members.
Decrease opportunities for employee theft. If you discover a case of theft, put new controls in place to prevent it from recurring.
Respond quickly and justly to an incidence of employee fraud. You want other employees to see that theft and other fraud will be punished.
Try to gauge employee satisfaction regularly. Keep your eyes and ears open, and employ formal survey tools if necessary to get a sense of how your employees feel about working for the company.
Conduct background checks on employees before they join the company. You can likely identify some bad apples even before they join your organization.
Rotate duties of employees and make sure that they take vacations. Frauds committed by employees are usually detected when they are on vacation.