Preventing employee theft, fraud

Employee theft is one of the most serious problems facing small-business owners in the U.S. According to the National Federation of Independent Business, an employee is 15 times more likely than a nonemployee to steal from an employer, and employees account for an estimated 44 percent of theft losses at stores. The U.S. Department of Commerce reports that nearly one-third of business failures are related to employee theft or fraud.
Companies that insure small businesses against fraud have become alarmed by the losses and encourage owners to become even more vigilant.
Employees who steal typically have worked at a business for several years before starting to steal and continue for an average of three years before they get caught. That’s a lot of time to generate losses for the business. Here are some things you can do:
NFIB recommends that small-business employers perform background checks on potential hires. Checking references is one important step. But for employees entrusted with handling your money or financial records, a background check is better.
• Supervise employees closely. Not surprisingly, studies show that when supervision is lax, theft and fraud rates go up. This doesn’t mean looking over their shoulder every minute. But it does mean checking what they do. It’s also wise to have more than one person looking out for your money.
• Use purchase orders. The payment, receipt and preparation of purchase orders should be separate functions and handled by different individuals. Use serially prenumbered purchase orders and always verify incoming orders.
• Use informal audits. Make unannounced internal audits and have a yearly audit performed by an outside firm.
• Install computer security measures. Understand your computer systems and software, and how they might be used to divert money or inventory. Restrict access to computer terminals and records. Periodically change entry codes and check regularly to ensure that security procedures are in effect.
• Manage inventory and use security systems. Separate receiving, storekeeping and shipping functions. Physical inventories should be done annually by individuals who are not responsible for inventory records. Some businesses also install security devices to monitor merchandise or inventory. •


Daniel Kehrer can be reached at editor@bizbest.com.

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