Protect Your Assets

How to Stop Employee Theft Before It Starts

Are Your Employees Committing Fraud? What to Watch For and How to Stop It

Small businesses are 50 percent more susceptible to employee fraud than larger businesses. While there are a host of ways an employee can embezzle from a company, check tampering and billing fraud are the most frequent deceptions that occur within small businesses.1

The good news is that a fraud prevention strategy based on simple monitoring can help build a culture of accountability that makes theft less common and less costly. Use this six-step checklist to reduce the risk of employee fraud and streamline fraud prevention:

Step One: Check assignment of duties

Separation of duties is one of the simplest tactics to fight fraud. Start with a clear definition of roles and responsibilities, set proper separation of duties and implement financial checks and balances with no single employee having too much authority. Generally, the larger and more collaborative the set of decision-makers, the less likely any one of them will commit fraud. Don’t forget that a business’s vendors are part of a business structure and that they can also help identify fraud.

Step Two: Consistently communicate and administer rules

Have a single set of fair and clear rules around travel, credit card and other spending policies, as well as expenditure approvals, and communicate them frequently. Don’t allow employees to cut corners for the sake of convenience - overlooking consistent sloppiness could eventually encourage others in the company to steal. Set an example by consistently applying the rules and ensuring that managers are complying as well. Employee fraud is more likely to occur when company leadership inconsistently enforces standards—or worse, doesn’t enforce them at all.

Step Three: Follow the money

Reconcile accounts and statements frequently, using alerts to provide updates when items are posted. Review expense reports and employee compensation programs that could be hiding misappropriated funds. Monitoring purchasing can also pay off. If cost of goods sold is rising with no commensurate increase in sales, there might be a problem with payments to fraudulent vendors with employee theft.

Step Four: Raise accounting’s profile

When it comes to the use of funds, accounting sets the tone for a business. The accounting function must be able to fairly and rigorously manage the daily flow of information and money. If appropriate questions aren’t asked by the finance and accounting staff, they probably won’t be asked at all.

Step Five: Speak out

Many people want to avoid confrontation, but asking questions about something that doesn’t make sense doesn’t have to be an accusation: it’s asking for information. Take note if an employee or manager is having an emotional dispute when asked about transactions, or is reluctant to answer routine questions. Fraud harms the business, and thus everyone’s paycheck. Persistent and outspoken attention to fraud will indicate to everyone that instances of fraud are likely to be discovered.

Step Six: Eradicate fraud opportunities

Reinforce accountability and spread a culture of honesty and fairness by:

  • Creating—and maintaining—defined duties for each employee to promote accountability and make tracking discrepancies easier.
  • Building system controls that appropriately balance efficiency with fraud prevention.
  • Writing and enforcing clear management-approval policies that raise awareness and encourage employees to do the right thing.


Read more about the risks that fraud poses to small business owners in the infographic Small Business, Big Risk.

1 Association of Certified Fraud Examiners, Report to the Nations on Occupational Fraud and Abuse: 2016 Global Fraud Study.

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