How to Avoid Employee Fraud

In a survey by Leicester University, 70 percent of the 2000 respondents confessed that they would perpetrate fraud if they knew they would not get caught. Employee fraud is usually a crime of opportunity and businesses can not be too cautious when taking measures to eliminate this opportunity. Read on for suggestions to identify and prevent fraud by employees.

Instructions

Difficulty: Moderate

Detect Fraud

1. Assess employee behavior and note any changes. Signs like personality alterations, consistently working late hours, refusing time off or promotions and sudden wealth or a new lavish lifestyle point to potential fraud.
2. Investigate any discrepancies in the books. Track down any unexpected line items or checks to unknown recipients. If missing checks cannot be located or check numbers are out order, compare them to bank statements. Any financial transactions that cannot be reconciled are red flags for employee fraud.
3. Follow up on customer complaints regarding financial transactions, such as complaints about missing or incorrect statements.

Prevent Fraud

4. Separate financial duties. No individual employee should handle every stage of a financial transaction. By breaking up the responsibilities, employees will have fewer opportunities to embezzle and any stealing would be more easily noticed by others in the chain.
5. Take a personal role in the financial activity of the business. Get acquainted with the bookkeeping processes. An accountant or an accounting class at a nearby community college can teach you how to understand the books. Sign each check personally and open bank statements yourself. Tell the bank to mail statements and canceled checks to your home address. Once you are familiar with how the books normally look, any employee fraud will stand out more easily.
6. Keep track of checks. Lock checks in a drawer or safe and do not share the key: With pre-numbered checks, any missing or out of order checks will be easily identified. Never sign a blank check. Consider opening a separate bank account just for payroll and reconcile it every month.
7. Hire a third party accountant to audit the books at least once a year. A surprise, unscheduled audit will minimize an employee's chance to cover up any fraudulent actions. When warning signs appear, ask for a special fraud audit instead of the usual overall audit.
8. Make the bookkeeper go on vacation. Employees who appear loyal and refuse to take time off might be purposely staying at work in order to cover up a paper trail of fraud. Schedule the vacation for the end of the month so that another employee closes the books and can note any inconsistencies.

Tips & Warnings

• This article is intended for informational use only and does not constitute legal advice.