The Thief on the Inside

If you run a small business, chances are you don’t have much to lose, so you certainly don’t want your own employees robbing you blind!  How do you prevent your business from being attacked from within by employee fraud?

According to Business Biscuit (the Wiltshire business news hub), South West businesses reported more than £5.2m in losses from employee fraud last year: in Swindon and Wiltshire alone, 22 incidents of fraud led to losses of £1,270,969 – the ninth highest in the UK.

The ActionFraud national reporting centre says nearly one in five small businesses have been defrauded by an employee at some point during their trading history.

There are all sorts of ways employees can commit internal fraud, from something relatively simple like stealing stationery or putting in false travel claims, to unauthorised use of the company credit card or creating bogus customer records and bank accounts to generate false payments. Among the most serious cases are employees who directly steal the intellectual property of their employer, or who pass on sensitive business information to competitors for personal gain.

The employee him/herself may not think they are committing a serious offence by skimming a little extra from the company by lying on an expenses sheet, or similar, and can even often justify their behaviour by saying they feel they’ve earned it. If everyone were to act the same, however, the financial implications would collectively be enormous. Besides this, if a dishonest employee gets away with the “small stuff”, who’s to say he/she wouldn’t be tempted to go for bigger gains and start robbing the company in more serious ways, like the aforementioned selling on of information.

It’s not only financially that a business can lose through staff fraud. There could also be a serious loss of reputation, and potentially fatal impact on customer loyalty, particularly if the fraud catches media attention and comes to court.

So how can you safeguard your business against the threat of dishonest employees?

The first line of defence is offence – right up there at the start when you first receive a job application and CV from a prospective employee. You need to be extremely vigilant and scrupulous in checking the background of every individual you employ. The only way of telling whether a job candidate has been honest about his/her employment history, or not overstated their qualifications, is to check and double check. Don’t take their word for it however honest and open a person the candidate may seem.

Don’t be afraid to let job candidates know – perhaps as part of their recruitment pack or when you schedule an interview – that you will be scrutinising their backgrounds and that your company has an anti-fraud policy in place.

Don’t sweep the possibility of fraud under the office rug. It needs to be discussed in staff meetings, ideas called for and acted on, and generally accepted as an important part of the corporate structure. Emphasise to all your staff that fraud prevention is everyone’s responsibility.

Staff should know there is a clear reporting process if they become suspicious and feel moved to “whistle-blow” on a colleague or superior. There should be regular monitoring and checks of all the business processes that might be open to fraud, and regular checks and audits of all the company’s assets. Restrict access to company finances and assets only to those who need them, and have back-up checks and balances in place so that no single individual can appropriate company funds, property or intellectual property without another’s co-signature.

In other words, keep temptation at bay, and pre-empt the exploitation of any weak spots in your company set up.

Formerly honest and upright employees are often motivated to commit fraud when they run into personal financial difficulties or develop addiction problems. Therefore it helps to have a good relationship with your staff, so you can pick up on any signs that they are suffering personal problems, and move to discuss, re-assure and assist with a solution, before they are tempted onto the slippery slope of fraud or theft.

If you come to a point where you have to dismiss an employee for fraud or theft, make sure all your staff members are made fully aware of the consequences of his/her actions. The message should go out that the company has a “zero tolerance” approach to any type of fraud or theft.