When analyzing risks within your business you would like to believe that you have hired the right group of people and that you don’t have to worry about employee fraud and dishonesty. However, this is just not how business works in reality. In fact, about 80% of all workplace crime and loss is related to employee fraud and dishonesty, and around 45% of all businesses are affected by employee fraud and dishonesty in some way. The U.S. Chamber of Commerce estimates that 75% of all employees steal at least once, and half of those employees steal repeatedly. Add to this the fact that about 75% of all employee fraud and dishonesty goes unnoticed, and the instances that are found usually take about 18 months to discover, and it becomes clear that the financial and emotional risk from employee fraud and dishonesty to businesses is very high. So, what can you do to ensure your businesses employees remain an asset and not a liability to your company?
What Is Employee Fraud And Dishonesty?
Before you are able to take any steps to help prevent and protect your business from employee fraud and dishonesty, you must first understand what employee fraud and dishonesty actually is. There are many different forms that employee fraud and dishonesty can take on including theft of money or property, stealing business opportunities, stealing company time, payroll fraud, false invoicing, false inventory, computer fraud, theft of confidential company information or trade secrets, and embezzlement.
Protecting Your Business
The good news is there are a lot of actions you can take to help prevent and protect your business from employee fraud and dishonesty. Best practices to follow to prevent employee fraud and dishonesty and protect your business from these losses include:
- Smart Staffing Practices
Preventing employee fraud and dishonesty starts before someone even becomes an employee of your company. You need to make sure your business is using smart staffing practices and thoroughly checking out any potential new employees before they are hired. You should conduct a background check on all new employees to discover any criminal backgrounds they may not have disclosed. You should also call previous employers and any listed references.
- Keep Track of Cash & Split Up Financial Responsibilities
If your company handles cash, it is important to make sure all slips, records, and reports of profits or losses are noted and properly recorded at the end of each day. If a deposit of cash needs to be made to the bank and you can’t make the deposit yourself, you should have at least two people go to make the deposit together. The key is to make sure that no one person has too much financial responsibility within your organization. Financial responsibilities should be delegated between multiple employees with a minimum of one person that handles finances coming in such as cash, checks, merchandise, and supplies, and another person that handles anything financial going out such as payments, orders, and finished products. Splitting financial responsibilities up across the organization and across multiple employees creates a system of checks and balances that allows other employees to check for discrepancies as they perform their own work.
- Know Your Team!
One of the most important things you can do to help prevent but also help detect employee fraud and dishonesty is to know your team and know them well! If you make a strong effort to get to know your team well, your employees are more likely to feel that you actually care about them and will then be more likely to open up to you when they are facing difficult situations. When your employees feel that they are close to you, it will also make it more difficult for them to steal from you. By knowing your employees well, you will know if an employee is facing a situation that could make fraud more tempting (such as financial problems like foreclosure) and you will also know if an employee seems to suddenly be living beyond their normal means – both of which can be an alert for you to pay attention for possible employee fraud or dishonesty.
- Establish A Code of Conduct & A Strong Culture
A Code of Conduct is a simple anti-fraud tool that no business should go without. The Code of Conduct is simply a guide book that lays out the set of rules, values, responsibilities, and ethical obligations you expect each person in your organization to follow. A strong Code of Conduct will encourage employees to properly handle difficult ethical situations that arise in the business. Following a Code of Conduct up with a strong work culture will help ensure employees are comfortable with coming to you to report any potential suspicious activities or behaviors by other employees. A positive work environment includes clear organizational structure, clear job roles, fair employment practices, good communication, and positive recognition for good work. The more positive an employee’s work environment is, the more likely they are to want to follow your company’s policies and procedures, and to protect the best interest of the company by speaking up when something is wrong.
Making your businesses Code of Conduct readily available and providing thorough review and training of it, along with making sure your company’s culture is one that knows fraud will not be tolerated, and other employees are encouraged to speak up and are protected when they do so, will help deter employee fraud and dishonesty by making sure the environment is not one in which the “opportunity” to commit fraud becomes appealing. It is also important that you take a good look in the mirror here and make sure that you are leading by example. Employees will respect your company’s policies more if they see you are respectful of those same policies, and that every individual within the organization (regardless of seniority or position) is held accountable for their actions in the same way.
- Audit & Inspect
In order to run your business efficiently you will likely have scheduled audits and inspections that are a normal part of your business practices. But adding surprise, un-scheduled, audits and inspections to your business model will do much to help prevent employee fraud and dishonesty. This doesn’t have to mean you micro-manage every detail of your employees’ work day, but if they know that you perform random checks of inventory and record keeping, they will be less likely to try to commit fraud and dishonesty, and if it does occur you will be more likely to catch it sooner.
While it is important to make sure you are doing everything you can to prevent employee theft and dishonesty, the best way to make sure your business is actually protected against these losses is to make sure you have a strong commercial insurance policy. Contact us today to speak with a licensed insurance agent who can review your business needs and risks and make sure your commercial insurance policy has the coverage your business needs!