Start with Your Staff to Prevent Fraud in Your Small Business

Small businesses are both disproportionately victimized by fraud and under-protected by anti-fraud controls, according to the 2014 Report to the Nations from the Association of Certified Fraud Examiners (ACFE). The report found that 77 percent of frauds were committed by employees working in one of seven departments: accounting, operations, sales, executive/upper management, customer service, purchasing and finance.

The encouraging news for small business owners? You don’t have to lay out huge sums of money to protect your company against occupational fraud. Consider these cost-effective tips to protect against common forms of fraud in the workplace.

Be wise in your hiring decisions: Get on the right foot by hiring employees you can trust. Basic pre-employment background checks are smart for any employer, especially if your employees will be handling cash, high-value merchandise or have access to sensitive customer or financial data. To find out more about which background checks are legal to pursue, check out the resource guide provided by the U.S. Small Business Administration.

Maintain high ethical standards: When leaders or managers exhibit unethical behavior or give questionable advice, it can be easy for subordinates to follow suit. Develop a comprehensive code of ethics and obtain total buy-in from everyone in your company — from the top down. If you determine for sure that an employee has violated that code and committed fraud, fully enforce your anti-fraud policies, regardless of the employee’s rank.

Educate your employees: Remember that your employees are your first line of defense against fraud. Hold regular security training sessions (online and off) and offer refresher training annually so that all staffers can remain up-to-date on the latest threats.

Make it easy for employees to report fraud: Tips are far and away the most common way that occupational fraud schemes are detected, accounting for more than 40 percent of all initial fraud revelations, according to the ACFE’s 2014 global report. Coming in a distant second and third were management review (16 percent) and internal audit (14 percent). For this reason, it’s crucial to create an office culture where employees are encouraged to report suspicious activity (especially involving their supervisors, since perpetrators with higher levels of authority cause much larger losses) without fear of retribution.

Be aware of behavioral red flags: While pre-employment checks can be useful, it’s important to know that the vast majority of occupational fraudsters (approximately 84 percent according to the ACFE) are first-time offenders with clean employment histories. Fortunately, there are some red flags that can clue you in to potential problems. Does one of your employees appear to be living beyond his means? Is someone experiencing financial difficulties? Have you noticed a staffer who seems to have an unusually close relationship with a vendor or customer? These are the most common warning signs that can tip you off to fraudulent conduct.

While no small business is completely immune to the threat of fraud, it is possible to reduce the risks of fraud damages by being proactive in your anti-fraud efforts. For more information about fraud and identity theft, visit our Education Center.

The views and opinions expressed in this article are those of EZShield Inc. alone and do not necessarily reflect the opinions of any other person or entity, including specifically any person or entity affiliated with the distribution or display of this content.

Laura, former VP of Marketing at EZShield, now a Sontiq brand, is a marketing professional with over 20 years of experience leading marketing and...
Read more about Laura Bruck.


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