Protect Your Company and Customers against Employee Fraud
No business owner likes to think his or her personnel could
be dishonest - until it's too late. Employee fraud not only
drains hard-earned revenue; it also affects how your company is
perceived by customers, suppliers, and vendors.
Here are some of the steps you can take to protect
professional and personal assets from employee fraud.
- Sign all checks personally. Get rid of the
"check stamp." If that sounds too time-consuming, require
two signatures on checks over a pre-determined amount. That
way you'll create a system of checks and balances to ensure
no one person has the authority to make major purchases
without authorization. Audit your checks on a regular basis
to make sure no checks are missing.
- Keep checks and financial documents in a safe
place. Restrict access only to those who truly require
- Eliminate petty cash. Set up accounts with
vendors and suppliers. Use purchase orders and
- Set limits on purchase approval. Decide your
"purchase pain" threshold, and limit purchases in excess of
that amount to a select group of employees - or even to
- Require all purchases to be authorized by a select
group of employees; do not grant blanket authority to
all employees, even on a limited dollar-amount basis.
- Divide responsibilities. Never allow one
employee to be responsible for all stages of a financial
process chain. For example, have one employee create and
make bank deposits, and have another employee reconcile
bank statements. If you run a retail store, have a
different employee reconcile cash registers at the end of
- Hand out paychecks personally. If you run a
small business, you know all your employees. If your
employees run in the hundreds, it could be easy for someone
to create a "phantom" employee and pocket their "earnings."
Handing out checks not only lets you keep track; it also
lets you say "thank you" to your employees for their hard
- Keep original copies of all purchase orders and
invoices. Have multiple people responsible for
counting, ordering, and checking in inventory. Rotate
duties. Create checks and balances.
- Have an outside accountant review your books on a
regular basis. A fresh set of eyes can catch
discrepancies or problems you might otherwise miss. Audit
payroll records on a regular basis. Match time cards, work
hours, etc., with payroll records in case there are
"phantom" employees or overstated work hours.
- Know your vendors. Check in with them regularly.
Stay in touch with what supplies and services your company
purchases. Make it easy for vendors to let you know if they
think fraudulent activity is taking place.
- Perform credit and reference checks on all
businesses to which you may extend credit. Credit and
reference checks are your best defense against fraud - and
against offering credit to companies or individuals who are
not in a position to make good on the debt.
- Don't give one person complete control of your
company's finances. We covered this topic already, but
it bears repeating. Don't create temptation. Divide
responsibilities and conquer potential fraud.
- Run regular business credit checks. Identify
misuse of company accounts or accounts created without your
- Shred sensitive information. Retail stores and
restaurants take in massive amounts of customer information
including credit card numbers. Shred all documents
containing personal information including unused or
unneeded credit card charge slips.
- Immediately investigate if you suspect
Property and Data
- Lock all doors and restrict access to specific
areas. Office employees do not need access to spare
parts; shop-floor employees do not need access to financial
- Maintain an up-to-date list of equipment and
supplies. Know what your business owns and make sure it
stays where it belongs.
- Assign keys and electronic keys. Check
periodically to make sure assigned keys have not been lost
- Password-protect all computers and programs. Use
strong passwords, and change those passwords
- Perform regular data backups.
- Keep all sensitive information in locked drawers and
cabinets. And limit access to those files on a "need to
have access" basis.
- Reclaim all keys and badges when employees are
- Keep customer files in restricted areas. Never
let employees take files containing employee or customer
information from those areas (especially to their homes).
While working from home may make sense, segregate sensitive
information from other data or information that can be
safely used outside the office.
- Keep company files in restricted areas. Pay
special attention to employee files containing personal
information; your files likely contain addresses, Social
Security numbers, bank-account numbers --data that can be
used to steal another person's identity.
- Never put Social Security numbers on employee
paychecks. Better yet, consider direct deposit.
- Dispose of sensitive data properly. Shred paper
files and format hard drives. Create policies and
procedures for properly disposing of any physical or
electronic data and make sure those procedures are
Once you put safeguards in place, create formal policies
detailing the repercussions and steps that will be taken if an
employee is found or suspected of engaging in fraudulent
activity. Make sure all employees are trained in your policies
and fully understand potential disciplinary actions as well as
the civil and criminal penalties they could face. (While that
may feel like an awkward conversation to have with employees,
don't worry; honest employees won't be offended while
potentially dishonest employees may think twice.)
No matter how hard you try, it can be difficult to eliminate
all employee fraud. Consider adding employee theft and fraud
coverage to your business insurance policy; that way if the
worst does happen you may at least be able to minimize the