How to Counter Employee Fraud

Another negative consequence of the economic downturn: employee fraud and thefts are on the rise.

Periodic credit and criminal background checks, also known as ‘continuous screening’ or ‘infinity background screening,’ have been shown to be effective risk management tools for companies and a major deterrent against potential fraud.

Employees facing increased financial hardships (such as having a spouse who was laid off, a sick family member or a home at risk of foreclosure) are more likely to take illegal actions to augment their incomes.

It is vital to an organization, large or small, to have a fraud prevention plan in place. The fraud cases studied in the ACFE 2014 Report revealed that the fraudulent activities studied lasted an average of 18 months before being detected. Imagine the type of loss your company could suffer with an employee committing fraud for a year and a half. Luckily, there are ways you can minimize fraud occurrences by implementing different procedures and controls.

There are countless ways workers steal from employers, but here are five of the most common with ways to fight back using the latest in digital security:

1. Know your employees. Be alert to key indicators of potential theft such as:

  • Sudden, apparent devotion to work and working late.
  • Lifestyles well above salary levels.
  • Strong objections to procedural changes related to financial, inventory or supply matters.
  • Drugs and alcohol abuse.
  • Moonlighting with materials available at the business.
  • Evidence of compulsive gambling, persistent borrowing or bad check writing.

NFIB recommends that small business employers perform background checks on potential hires. Checking references is one important step. But for employees entrusted with handling your money or financial records, a background check is better.

2. Supervise employees closely. Not surprisingly, studies show that when supervision is lax, theft and fraud rates go up. This doesn’t mean looking over their shoulder every minute. But it does mean checking what they do. It’s also wise to have more than one person looking out for your money.

3Use purchase orders. The payment, receipt and preparation of purchase orders should be separate functions and handled by different individuals. Use serially pre-numbered purchase orders and always verify incoming orders.

Embezzlement has been the No. 1 financial crime for the past four decades; almost one-third of all company bankruptcies can be attributed to embezzlement.

Fraud, identity theft and property thefts account for 60 percent of a company’s annual losses.

Common employee frauds include false invoicing, check forgery, theft of cash and goods and setting up ghost employees or ghost vendor.

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