Is your Company at Risk?
Posted on January 20, 2016 by Cindy Gordon, One of Thousands of Business Coaches on Noomii.
Did you know that small businesses suffer an average loss of $147,000 from fraud? How are you minimizing your risks? Trusting your staff isn't enough.
A small business owner I know recently discovered that one of his employees embezzled about $300,000 from his company over approximately 8 years. The employee was responsible for some accounting functions including payroll. Every payroll, he would create the information needed to be sent to their PEO, get it approved by the owner, and then submitted a significantly different number for his own salary. The business owner never took additional steps to verify the accuracy of the payments – and the employee knew it! The owner never considered that his company may be at risk.
Every year billions of dollars are lost by businesses nationwide to employee fraud and theft and the number of incidents is rising. Small businesses are especially vulnerable because of the small number of employees and challenges of creating effective internal controls and segregation of duties. In 2012 the Report to the Nation on Occupational Fraud and Abuse issued by the Association of Certified Fraud Examiners (ACFE) reported that small businesses suffered a “disproportionately large” median loss of $147,000. Imagine if an employee stole that much money from you. How would if affect your company?
Small businesses may be at a greater risk of employee theft because of the family like environment that is often created. Owners tend to put down their guard because of an inherent trust factor that develops. However, it’s important to keep in mind that not all fraud is intentional and premeditated. Fraud can occur because the employee is: dealing with personal financial stress; mad at the boss; entitled or just plain greed. Unfortunately, these factors are not always evident to the business owner – their company is unknowingly at risk. So to ensure his or her business is adequately protected; a business owner needs to put some checks and balances into place. I’ll talk about some of these in my next blog post. For now, let’s look at some ways employees take advantage of their employers.
Unfortunately I’ve come across a number of different types of fraud and theft during my years in public accounting. Here are some of the more common:
1. The creation of factitious suppliers – an accounts payable clerk created a fake supplier, issued invoices for product that obviously the company never received and then stole the money that was issued as payment.
2. Theft of supplies or inventory – how many people are guilty of taking some pens or paper home from the office? Unfortunately most people don’t consider this petty theft – but it is. I’ve seen situations where boxes of inventory go missing – taken by employees and sold for their own benefit.
3. False worker’s compensation claims – this is common and can be a very costly. An employee has a minor accident at work and claims more serious injuries. The employee gets off work and gets paid worker’s compensation while the company pays for replacement help and potentially higher worker’s compensation fees.
4. Overpayment of payroll – as described in the opening paragraph an employee paid himself more than his regular pay or issued payment for vacation time already taken.
5. Fictitious inventory returns – an accounting clerk generated paperwork for fictitious inventory returns then create a check payment to herself. No other paperwork was required as proof that the inventory was returned.
6. Petty cash theft – petty cash is cash maintained in the office or plant to cover small miscellaneous purchases. If not properly monitored, it is a very easy asset to steal. All you need is a fake invoice to substantiate the cash taken. In some businesses I’ve seen petty cash amounts that weren’t so petty.
I’d really recommend you step back and assess whether your company is at risk for any these workplace frauds. Don’t try to convince yourself that your employees are different and they would never take advantage of you. Unfortunately, I’ve seen too many business owners with this belief get ripped off.
For tips on how to protect your company from employee theft, please check out my blog post called "How to Protect Your Company From Employee Theft Before It’s Too Late. You can find it on my website.
