Are you at risk for employee fraud? While every employer hopes they can think the best of their employees, this may not be the case. In addition to betraying the trust you have in your team, employee fraud can eat into your annual budget. In fact, a recent report issued by the Association of Certified Fraud Examiners places the cost of employee fraud at 7% of annual revenues.
According to the ACFE, employers with less than 100 employees saw a median loss of $200,000 a year. Another study performed by the Institute for Corporate Productivity and HR.com showed that 20% of all employers have some form of employee fraud.
Employee dishonesty and fraud present themselves in a variety of ways. Because of this, you may not recognize employee fraud in your business until it is too late. Some of the most common types of employee dishonesty include:
- Inventory Theft
- Vendor Kickbacks
- Padded Expense Accounts
- Phantom Vendors
While the statistics regarding employee fraud are less than encouraging, there are several effective ways to combat this unnecessary expense in your business.
Employee Fraud Prevention Suggestions
The best way to prevent employee fraud in your business is to take a proactive stance by establishing a plan. Here are some of the best practices to implement in your organization:
- Complete background checks on all employees.
- Always check resume references.
- Separate duties; split up check writing and deposit responsibilities.
- Require two signatures on checks over $250.
- Add a third person to reconcile books.
- Contract an outside firm to perform an annual audit.
- Hold employee training on policies and procedures.
- Install video cameras in warehouses and parking lots.
- Review your employee dishonesty coverage annually.
Potential Red Flags of Employee Fraud
So, what are some of the first red flags of employee theft or fraud in your organization? While it is important to assess every situation carefully, some of the potential red flags for employee fraud include:
- An employee not taking vacation time.
- Being overly protective about their workspace or accounts.
- Prefers to be unsupervised by working after hours or taking work home.
- Unexplained debt.
- An unexpected behavior change.
If you suspect employee fraud at any point, you must contact your HR professional for advice on how to best proceed. These situations can quickly become quite complicated and must be handled with care. As a business owner or CEO, it is your responsibility to protect the future of your business by reducing occurrences of employee dishonesty.
If a loss occurs, you should immediately seek legal advice in addition to working with your HR professional. It is also wise to check your insurance policy for theft coverage. Every business large or small should have some level of coverage to account for the unfortunate occurrences of employee fraud.
LUXA Enterprises specializes in HR services, outsource accounting, bookkeeping, and payroll services. We match up with ideal candidates for services by allowing small to midsize businesses to increase focus on their growth through outsourcing. If you want to know how we can help you, contact us today!