Hot Tips To Prevent Employee Fraud

I remember a business associate of mine had a small law office where he did real estate transactions. He naturally did much himself, however when he contracted cancer he had let his office manager run the office, including paying the bills. In the 6 months he was out going through therapy, she stole hundreds of thousands of dollars from his various accounts. She did it by meticulously learning how to forge his signature which she ultimately mastered. She was also caught red handed when he returned. What saved him was the fact that we had him add to his insurance policy employee dishonesty insurance coverage which covered MOST of the loss. Naturally she didn’t have the funds to pay back. I have too many of these types of stories to share , however having employee dishonesty coverage takes away much of the sting. Read below to find out how you can avoid being set up.

Employee fraud can create disastrous consequences for a business owner that does not have the proper protection in place. Fraud is especially prevalent in tough economic times. Reasons that people commit fraud include rationalization, pressure, and opportunity. A recent report from the Association of Certified Fraud Examiners revealed that $994 billion were lost as a result of employee fraud. The following three tips are designed to lower the risk of becoming a victim of employee dishonesty, protecting your business from a net income loss.

Catch the Early Signals

The most effective way to prevent or deal with fraud is to catch it early. In order to do this you must be alert to company practices and employee behavior. There are certain indicators to be aware of when looking for potential fraud.

Employees who never take vacation
Employees who do not assign work to their coworkers
Inconsistencies in employee’s reports
Shortages in financial books
Employees who may have excessive authority
Employees who seem to live outside of their means
Lack of documentation for reimbursements

Of course these indicators by themselves do not necessarily mean that fraud is occurring. They do however serve as a tool to notify you that further follow up is necessary.

Effectively Supervise

Supervision should be proactive without crossing boundaries. Policies and procedures should be written, implemented, and enforced. This is often done via employee handbooks or policy manuals which are critically important tools for any sized business beyond simply employee dishonesty. The documents should outline a zero tolerance policy on fraud and encourage all employees to report suspicious behavior on a confidential basis.

Effective Supervision requires some of the following actions:

Do not delegate all financial responsibilities to one person. Instead, have a system of checks and balances;
Require documentation to support financial reports;
Take security measures like installing cameras;
Conduct unannounced audits. This will serve as deterrence for fraud much like randomized drug testing deters drug use.
Hire a CPA to conduct an audits at the very least annually ; we recommend audits done by an outsider quarterly so you catch it quicker.
Require background checks;
Set reasonable goals so employees do not commit fraud due to pressure;
Educate your employees about fraud and treat them with respect;
Keep inventory;
Have employees sign in and out and require vacation time;
Listen to your instincts and follow up on questionable behavior;

Take Appropriate Action

Once a complete and objective investigation is done and it is determined that fraud was committed, it is time to take action. The zero tolerance policy that you have implemented should be enforced to create future deterrence for other employees.

Lastly, in addition to following these tips it is important to have Crime and Fidelity Insurance, also known as employee dishonesty insurance to protect yourself against employee dishonesty or fraud. This very important insurance coverage can protect a small or medium sized business from absorbing the loss themselves. The premium quite often amounts to only a few hundred dollars predicated on the limit of coverage.

Remember Employee Dishonesty Insurance , Crime & Fidelity Insurance or various surety products are simply mechanisms to finance a loss. If an employee steals from your business you have only four ways to recover. Fund the loss through current cash flow or operating capital, fund it through cash reserves, fund it through debt, or fund it through the purchase of employee dishonesty insurance, crime & fidelity insurance , or various surety products. This insurance coverage is critical for any business, especially those that may deal with client money in the form of a trust account, or escrow account.

For more information on how to properly implement an appropriate insurance policy contact one of our Risk Advisors in the New York , New Jersey, Connecticut Metropolitan area. Transfer the risk through insurance , or self insure, bit please be vigilant!

We hope you found this helpful. Stayed tuned for more unique and intuitive information from your friends at Metropolitan Risk Advisory.