You may find that a stupid question. Most business owners would say I would fire an employee if they stole anything, and I would agree. Knowing that, why do so few small business actually do anything to prevent employee theft? Several reasons, in my experience: “I trust my employees”, “I write the checks and make the deposits”, “That will never happen to me”. Would you have the same attitude towards protecting your family and home? Leave the doors unlocked, alarm turned off, door open with a sign that says, come on in?

The truth is that most small business literally is leaving that sign on their door. There are individuals that make a living off stealing from small businesses. Many times they aren’t even turned into the police because the owner is too embarrassed. In my two decades of working with small businesses, I have MANY examples, but let me share a couple as a matter of example.

The first was a very simple case of check fraud. The employee took their hand written check and added Two Thousand to the front of the amount. Simple and easy. The owner didn’t catch it. We did when we were reconciling their bank account. An employee had already been fired, but our client didn’t get his money back. The second was much more sophisticated. This employee was a bookkeeper, and had access to the accounting software, wrote checks, but didn’t sign them. I suppose the owner felt comfortable because they were signing the checks. Over the course of a year, this individual stole $100,000 using dummy vendors, with the owner signing checks to vendors that didn’t exist. The employee then went in and deleted the transactions in the system to cover their tracks.

I literally could fill a book with other examples, but my point with these is to show you that:

  1. Fraud can be simple or complicated
  2. Small business are exceptionally susceptible because they do not have accounting expertise
  3. They don’t have the proper controls in place because there aren’t enough bodies

So what does a small business owner do? First, you must make a commitment to make fraud prevention part of your culture. Of course, you can’t properly do that without good accounting and management information systems, which means that you have to make a commitment to processes and procedures for financial record keeping. Accounting and bookkeeping cannot be an afterthought. You will have to commit resources (read money), but the benefits go way beyond fraud prevention. Good systems will make you money.

Where do you start?

  • Begin with the basics. Start with background checks for all of your current and future employees ( Sign Up for Free for our Background Check Service)Click here to access our Client Accounting Manual)
  • Use your accountant for more than just taxes. No only can they help you review your processes and procedures, you can have them review your financial records for unusual items. Often, just knowing that someone that knows what they’re doing is looking over their shoulder will scare the fraudster off to an easier mark.

Want to Know More?

Email me at cbrim@coregroupus.com with FRAUD in the subject line. I will send you with no cost or obligation our fraud assessment checklist. This valuable resource will walk you through your business to see where the potential problems lie. Let our experts help you with any of you bookkeeping, payroll or tax needs.