Know Risk is a community education program designed by the Australian and New Zealand Institute of Insurance and Finance (ANZIIF) to improve our understanding of insurance and how it relates to managing the many risks we all face in life.
Tips on dealing with employee fraud
Did you know that approximately 80% of workplace crime is carried out by employees? Or how about this, according to a recent survey, 85% of respondents admitted that they would commit a fraud if the “right” circumstances existed.
Employee dishonesty or fraud is a major problem for small businesses. With around 45 percent of businesses affected, hundreds of thousands of dollars are lost each year. Worse still, a significant number of affected businesses won’t find the fraud until months, or sometimes years, later.
But what is employee dishonesty and how can you stop it?
Employee dishonesty can take many forms, including theft of cash or property, false invoicing, false inventory, payroll fraud, computer fraud and funds embezzlement. Thankfully there are things you can do to as a business owner to lessen the instances and impact of these activities.
1 Do a background check
The first step to preventing employee theft is to thoroughly screen new employees before you even hire them. A good background check should include a check on criminal history, civil history, driving violations, as well as confirming education, past employment (including reasons for leaving), and references.
2 Lead by example
Why would your staff do the right thing if you don’t? Every person within your business, regardless of seniority, should adhere to the policies and procedures of the business and be held accountable for their actions – including you. Be a positive role model and act with honesty and integrity.
3 Create a positive working environment
While this may seem like a fluffy, feel-good idea, studies have shown that most people respond positively to clear organisational structure, job roles, fair employment practices, good communication and above all, positive recognition for their work. A positive work environment actively encourages employees to follow policies and procedures, and to act in the best interests of the business.
4 Use a policy manual
Make sure your control procedures are documented and that every employee is trained and has access to them. Include a ‘code of conduct’ which makes it very clear that there will be ‘zero tolerance’ of any fraudulent activity and that any such fraud will be reported to the police.
5 Separate duties
Don’t allow any one person to have sole responsibility for managing finances within your business. Separation of duties is critical to business security and no employee should be responsible for both recording and processing a transaction.
6 Audit your books regularly
While it takes time and money, organising an external party to check over your accounts each year will help ensure any irregularities are found and reported. As an owner, take the time to regularly review your accounts and double-check that payments are being made to legitimate vendors.
7 Get financial protection
On top of business interruption and cyber insurance, fidelity insurance can help protect you for financial loss resulting from dishonest acts by an employee. These policies generally cover instances of theft or misappropriation by employees. Talk to your broker or insurer for more information.
8 Allow your staff to blow the whistle
Most incidents of employee theft are revealed by co-workers, but many people are still hesitant to report them to employers. Set up a system where your staff feel comfortable to report employee theft anonymously.
9 Be alert
Communicate regularly with your staff and be mindful of any stress they may be feeling, particularly to those who have indicated they are having financial difficulties. Also, be on the lookout for any unexplained rises in an employee’s standard of living or spending habits.