Don’t Surrender to employee Fraud, Be Proactive (May - June 2010)

Its starts with a phone call and a disappointed manager/owner, employee John Doe was a good worker and I got complacent and trust him with my life. Once I hear those words, I know what is about to come. As a former auditor with the City of Miami and former Forensic Accountant Investigator with Medicaid, I have poured over boxes of data building cases for prosecution. Small Business employee fraud is different, in some organization it’s like a family culture, working these cases are not the same as commercial economic cases I have worked in the past, while staying objective I understand what it feels like to be betrayed by a trusted employee.

The emerging business often cannot survive the losses of significant employee theft. The owner/manager of the emerging business wants to be trusting, but must have his/her eyes fully open and not be gullible. Recognizing that even the "nicest" employees may be subject to temptations and failures of character, prudence demands that procedures and practices be established to preclude the possibility of any employee fraud. The survival of your business depends upon it!

Small businesses are especially vulnerable to occupational fraud. The median loss suffered by organizations with fewer than 100 employees was $200,000. This was higher than the median loss in any other category, including the largest organizations. Small businesses also suffered the largest losses. Check tampering and fraudulent billing were the most common small business fraud schemes Association of Certified Fraud Examiners (ACFE).

Resumes should be checked thoroughly to ascertain that the applicant did graduate from the schools claimed. Any unaccounted-for time in the person's past must be acceptably explained. To guard against bogus employment references, a prospective employer should never rely on the resume as the source for the telephone number of an applicant's previous employer.

The owner/manager of the emerging business must exercise some simple precautions to thwart employee fraud. Each employee handling money should be removed periodically from their job so that any malfeasance may not be continually concealed; this can be accomplished through required vacations and short-term job rotation. (The classic embezzlement is the handiwork of the trusted employee working long hours and never taking a vacation — most thefts would surface if the employee had to take their hands off the job.).

And an independent audit at least annually is an expense the smaller business cannot afford not to incur. The emerging business often cannot survive the losses of significant employee theft. The owner/manager of the emerging business wants to be trusting, but must have his/her eyes fully open and not be gullible. Recognizing that even the "nicest" employees may be subject to temptations and failures of character, prudence demands that procedures and practices be established to preclude the possibility of any employee fraud. The survival of your business depends upon it!