This post may contain affiliate links. I will receive a small commission if you purchase using these links, at no additional cost to you. For the full disclosure, visit this page.
Small business owners understand the importance of using secure passwords and not opening suspicious attachments. Certainly, cyber crime is a risk, and protection measures are important. However, few entrepreneurs realize the biggest risk of theft comes from the inside – their own employees. I recently shared my own story of employee fraud. Here, read about how to protect your business from employee fraud.
Did you know there is an Association of Certified Fraud Examiners? Yep, occupational theft and fraud is so common that investigating it has spawned an entire profession. According to a global study the ACFE conducted in 2022, almost 50% of employee theft comes from accounting, sales, operations, and senior management. And the numbers are staggering. It’s estimated that businesses lose 5% of revenue to fraud, which amounts to $4.7 trillion annually.
And this problem is getting worse. Due to the pressures of post-pandemic inflation, employee theft is on the rise. In the UK, employee theft is up 75%.
Types of Fraud
Fraud falls into 3 general types. There is theft, financial statement fraud, and asset misuse. Clearly, theft is the biggest source of employee fraud. Because there are many ways to steal from a company. It can be as simple as taking cash or inventory. Or it can be padding expense reports, or timesheets. Also, it could be from misrepresenting expenses, like claiming an expense for a personal purchase.
Also, asset misuse is another form of employee theft. Company cars, computer equipment, and other technology are used for personal reasons. Meanwhile, the cost of upkeep and maintenance is paid by the company.
Employee Theft Risks for Entrepreneurs
Small businesses have a higher risk of employee theft, for a few reasons. First, a small business may not have a sophisticated software system of checks and balances. Secondly, an overwhelmed entrepreneur is more likely to know and trust their staff. So tasks are delegated and not monitored as closely. Thirdly, there may not be any fraud recognition training in place, or structured systems in place. Finally, smaller teams means less supervision and cross-checking. When only one person is responsible for a task, it gives more opportunity to commit theft.
How to Protect your Business from Employee Theft
Although entrepreneurs running a small business are at greater risk for theft, there are ways to manage it. Learning how to protect your business from employee theft will save time, hassle, and money. Follow these tips to reduce the risk in your business.
1. Separate business and personal
Don’t let employees do company business in their personal space. Specifically, this means no customers using their own phone number, email address, or social media profile. Also, no storing company documents, files, or notes on their devices, Drive, or iCloud. Make sure all their work is done in company spaces you have full access to, and control over.
2. Limit Access to Information
Do front line staff need to know strategic planning and budget forecasting? Nope. So limit access to information, according to a strict need to know policy. In addition to reducing the risk of employee theft, this also prevents management problems. For example, I know an entrepreneur who had a big morale issue when someone discovered the salary of a co-worker. All because the employee offer letter was in the company Drive. Though it wasn’t in a place where this person would normally be – people are curious creatures. And a simple search can pull up all sorts of information buried deep in folders. So separate out documents into different Drives, and give staff access only to what they need.
3. Protect Passwords
Use secure passwords, and update regularly. Never share passwords and access points to sensitive data like bank accounts, payment processing gateways, website host, domain name registration, and utilities. Furthermore, protect them in a safe, gated place that only you have access to.
4. Have Approval Processes
Essentially, set limits for staff. Even the managers who deal with all the daily operational stuff. Set limits on spending, and have approval processes in place. Be sure there is more than one signoff required. Don’t just hand over a business credit card for them to use. Setting limits and approvals means better oversight over the small tactical decisions.
5. Set and Monitor KPIs
Consider what Key Performance Indicators are appropriate for each employee. Tie these to business objectives and strategic plans. Then, monitor these KPIs regularly, and discuss openly for a culture of transparency. Examine all the information carefully to look for patterns. Don’t take any data that is self-reporting at face value. Implement random fact checking. After all, when the team sees the boss paying attention to the numbers, it makes it more difficult for staff to commit fraud.
6. Cross Check
Clearly, the whole point of having staff is so that, as an entrepreneur, you can work on your business to grow and scale. Delegating tasks and then checking on every detail defeats the purpose. However, having team members randomly cross checking activities introduces a measure of accountability. It reduces the risk of fraud because one person can’t operate in isolation.
7. Regular Audits
Conduct regular audits of transactions which are at risk for fraud. Refunds, gift card purchases, and expenses should be monitored regularly. Watch for any changes in patterns. For example, if shipping charges jump one month but revenue hasn’t, audit the posted expenses. When staff see that financials are being reviewed and audited this closely, it reduces attempts to steal from the company.
Check into every red flag, no matter how small. Though it may seem unlikely that your star employee is lying to you, it’s a mistake to not investigate. Get proof, and check the facts. Follow up every suspicion and report. It’s easy to get too trusting with long serving staff and top performers.
Protect your Business from Employee Theft
Knowing how to protect your business from employee theft is important for entrepreneurs. As shown above, there are several strategies to minimize risk. Remain sceptical, and keep a close eye on all transactions and employee activities. Don’t let personal friendships get in the way of a healthy level of mistrust. Also limit access to sensitive information. Additionally, introduce systems and processes for auditing, cross-checks, and investigations. Finally, set limits to what employees can access.