On behalf of John McDuff, Attorney at Law posted in Business Transactions
While sophisticated financial scams involving amorphous cyber-attack groups have stolen the headlines for the past decade, Austin small business owners should be aware that the most likely source of business fraud and losses is actually employees. A recent article from Smart Business citing the Association of Certified Fraud Examiners reports that four out of five internal fraud cases occur in small businesses.
Employee fraud and theft is one of the fastest growing crimes in the U.S., according to the FBI. In fact, the U.S. Chamber of Commerce estimates that 75 percent of all employees steal at least one time, and half of those will steal again. Moreover, in the United States 20 percent of every dollar earned is lost to employee fraud and theft, according to estimates by the American Society of Employees.
Business Owners Must Look For Signs of Fraud in Employees
In a press release from the Association of Certified Fraud Examiners, the ACFE profiled the persons most likely to commit fraud in a small business. Even if a small business owner does not suspect fraud, he or she should be on the lookout for these signs:
- Employees who are most likely to commit fraud include accountants, sales persons, managers, customer service representatives, employees in operations or buyers
- Employees who commit fraud are more likely to be in their thirties or early forties
- Employees who commit fraud might have an unusually lavish lifestyle or difficulties meeting financial obligations
- Employees who commit fraud generally do not have previous fraud convictions or financial crimes charges
Steps to Prevent Fraud: Oversight, Control of Bank Accounts, Random Audits
Smart Business advises Texas small business owners to take proactive steps to prevent fraud. Small business owners should complete criminal background checks on potential employees as a condition of a job offer. Even though most fraud is committed by people without criminal records, this step is still helpful to prevent hiring a repeat fraudster.
The business owner should not turn over complete control of the books to one employee and should have internal checks and balances in place so that coworkers can easily report suspicious activity, too. Finally, business owners should hire a financial auditor or CPA to conduct random, unscheduled audits at least once a quarter.