The right attitude is half the task

Small business owners are particularly vulnerable when it comes to employee theft and fraud due to the limited resources available for prevention and detection. A lack of resources combined with misplaced trust, poor hiring practices and limited basic financial controls make small to medium business owners an easy target for rogue employees.

However, the following tips can be used to help protect businesses from employee theft and fraud:

1. Create a Positive Work Environment: with clear policies and procedures. Whilst not all employee theft is attributable to disgruntled employees, it is a significant factor when employees feel they are being hard done by. This in turn fosters a sense of entitlement making it easier for them to justify stealing from their employer. A positive culture with open lines of communication and employee recognition will help reduce the likelihood of internal fraud.
2. Implement Internal Controls: Separation of duties such as the recording and processing of transactions whilst a great measure, is not always practical for small businesses. If this can’t be achieved, then close monitoring including spot checks should be performed regularly. Access to both physical and financial assets should be restricted to authorised employees. Also ensure that you have policies for initiating, authorising and reviewing financial transactions.
3. Hire the right people: A happy workplace won’t stop a dishonest employee and internal controls may present as a challenge to a fraudster. However, sound pre-employment processes may prevent hiring the wrong person in the first place. Run a thorough background check to confirm education and qualifications. Also consider driver’s license checks, bankruptcy checks and police checks. These things may seem over the top but there are many small business owners, who in hindsight, wishes they had run a criminal history check. It is also important to note that often these checks require consent from the potential employee and if they won’t give you approval it is likely you have your answer.
4. Educate employees: make sure they are aware of all policies and procedures related to fraud including internal controls and code of conduct, and then have them sign an acknowledgement.
5. Have an anonymous whistle-blower system: too often when investigating employee theft it becomes apparent that other members of staff either knew or suspected fraud. Often their suspicions are not brought to the attention of management for fear of being wrong. Any anonymous system allows people to raise concerns that can be investigated without fear of reprisal. It is also essential that any allegations are investigated no matter how farfetched they may seem. No doubt you all recall the Tahitian Prince working for Queensland Health!

With simple yet effective mechanisms to help prevent fraud along with regular spot checks it is possible to reduce a small business’s vulnerability to fraud. The key is to lead by example senior management and or business owners need to place high importance on integrity and following the rules and procedures. A cavalier attitude will be noticed by staff and often fraudsters test systems and policies with very small transactions first to see who is paying attention.