Protect Your Business from Inside Fraud

When you hire an employee to work in your small business office, after a while you trust them. They pay your bills, prepare your payroll, handle your banking – they’re efficient and you rely on them. But be cautious with trusting anyone too much. We’ve talked before about instituting controls within your office – not having the same person pay your bills who also reconciles your bank statement, for example.

What tempts a trusted employee to steal from you? Fraud can thrive when three circumstances exist: need, rationalization and opportunity.

  • First, your employee has the need for additional funds. This might be high personal debt, a gambling problem, substance abuse (themselves or a family member), high medical bills, or undue family or peer expectations.
  • Then comes the rationalization they come up with that makes stealing from you an ok thing to do. “I’m just borrowing the money”, “I deserve it – I’m underpaid”, “I’m not hurting anyone because the business owners are rich!”
  • And then you give them the opportunity to do it. You trust this person, so they have your password to your email account, your voice mail box, your online business bank account, and your online credit card account.

So we’re back to segregating duties. Don’t let the same person set up vendors who writes A/P checks. Don’t let the same person write checks who also signs them. Don’t sign any checks without the accompanying backup documentation – and don’t return checks to someone else for mailing – sign, seal and mail checks at the same time.

Help your honest employees stay honest!