Managing your employees properly: Helping to reduce fraud

An employer’s worst nightmare

An unhappy employee who decides to defraud or steal from the company is quite simply, an employer’s worst possible nightmare. An individual who you have trusted with representing your company turns on you and potentially harms your companies reputation. Unfortunately, there is an abundance of stories about employees committing these crimes and causing enormous damage.

In order to help reduce fraud, employers should be able to recognise the initial signs and then implement practices to prevent it; thus allowing for a happy and productive workforce.

Fraud Facts

There are various different types of fraud which could stem from an unhappy employee. Some types of fraud include; embezzling, insider trading and forging checks.

Small businesses tend to be more at risk as employees usually are given more responsibility and therefore access to more sensitive information or tasks. This, however, can lead to complacency and lax security measures. Small businesses tend to lack anti-fraud measures as many owners do not have the knowledge and enforcement capabilities of larger businesses.

Nearly 50% of victim organisations do not recover from losses suffered due to fraud.

The Fraud Triangle

Committing fraud is a decision which is not taken lightly. There tends to be a reason or reasons for undertaking such serious actions. A common framework which is used to explain employee reasons for committing fraud is the ‘fraud triangle’

The fraud triangle comprises of the following three conditions:

  1. Motive: The defrauder must have a motive to commit fraud, and this motive is often pressure. This can come from feeling too much stress at work to meet deadlines or trying to live a lifestyle that is above his or her means. Outside problems can exist as well, such as a gambling addiction. Monetary gain is often the motive behind employee fraud.
  2. Opportunity: If anti-fraud measures are too lax, the opportunity can be there for fraud to occur. Even if the perpetrator is financially stable, the opportunity to commit fraud for financial gain might be too much to pass up. Being employed in a high-level, trustworthy position can also lead to opportunity.
  3. Rationalisation: The perpetrator must be able to justify his or her actions. If employees sense some sort of wrongdoing from the company, they might be able to justify the fraud. They may also tell themselves they are just ‘borrowing’ money from the company with no intention to pay it back, or they might feel entitled to a raise and will commit fraud to give themselves that ‘raise’.

Understanding these conditions can be the key to recognising if fraud is occurring at your business. If you can recognise the signs in advance- then you may be able to reduce fraud within your business.

Recognising Employee Fraud

More often than not, it is difficult to recognise when a fraudulent act has occurred. According to the Association of Certified Fraud Examiners, frauds tend to last an average of 18 months without being detected. Detection, however, is much more likely to occur thanks to an anonymous tip-off rather than the company directors realising the issue for themselves.

As a result of this, many companies have set up confidential employee tip lines to try and catch the person(s) responsible for any wrongdoing.

Watch for warning signs

Whilst detecting fraud may be a difficult task, there are some key warning signs that you should be on the lookout when you think an employee may be defrauding your business:

  • Invoices from fake vendors—an employee can create a fictitious vendor, post a cheque to the fake vendor with your business’ name on it and then cash the cheque for themselves.
  • Missing property—laptops or other computing equipment can be an easy target for employees.
  • Fraudulent expense reports—some company reports are merely skimmed over for approval, offering an employee an easy way to fake expenses.
  • Forged cheques—if an employee consistently works around a high-level executive, it becomes easy for the employee to forge signatures.

How do I prevent and reduce fraud?

reduce fraud-rejection

If you run a small business, the chances are, a few of your employees will be in charge of several different areas of the business. In order to help reduce fraud in this case, the best course of action would be to split duties amongst a larger pool of employees. It is also essential to perform a pre-employment screening on all potential employees. Their C.V or resume may not tell the entire story about employees past. According to AFCE’S study, more than 80% of fraud came from employees in one of the following departments:

  • accounting
  • operations
  • sales
  • executive/upper management
  • customer service
  • purchasing

It is essential to recognise these high-risk departments as potential sources of fraud and implement the proper policies to prevent it.

Moreover, it is worth establishing an anonymous tip line that employee, clients or vendors can use to report cases of fraud within the business. Finally, it is also worth conducting random audits on your staff.

Proper Employee Management

One of the best ways to prevent employee fraud at your company is to ensure all your employees are satisfied with their work and the company as a whole. Lead by example—if you and your high-level management team conduct business properly and ethically, your employees will likely do the same. Good ethics also carry over into the market. Your company will be looked on favorably, which can lead to higher revenue and greater goodwill from the community.

Reward employees for doing well. Let them know how important they are to the success of the business. Don’t emphasise only the things that haven’t been achieved—focus on the positives, too.

Insuring Against Employee Fraud

Recognising and preventing occupational fraud can be a daunting task.

Contact CyberBee today. We have the tools necessary tools help your company reduce fraud and allow your business to be protected.

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