According to a report published by the Society for Certified Fraud Examiners in 2016, approximately 30% of all reported fraud cases occur in small businesses with fewer than 100 employees. This alarming statistic underscores the heightened vulnerability of small enterprises to fraudulent activities compared to their larger counterparts. One of the main reasons small businesses are particularly susceptible is their typically limited anti-fraud measures. Many small organizations lack the extensive controls and resources that larger companies invest in to mitigate fraud risk.
Fraud is especially prevalent in small businesses due to inadequate security protocols and the absence of comprehensive systems designed to prevent financial misconduct. While some small businesses have implemented accounting software to streamline their financial processes, this software often does not include the advanced security features found in the systems utilized by larger corporations. The disparity in available safety measures is frequently linked to price; many small business owners choose lower-cost software solutions, which may provide basic functionalities but fall short in terms of robust security.
Moreover, even when a small business owner selects high-quality accounting software, the potential for fraud still exists. A common practice in many small businesses is to assign all accounting and bookkeeping responsibilities to a single employee. This policy can be dangerous, as it concentrates financial oversight and control in one person’s hands, significantly increasing the risk of fraudulent activities. This individual is often the most trusted employee within the organization, entrusted with critical financial operations, which can lead to a lack of oversight and accountability. Such a setup can create an environment where fraudulent activities may go undetected, ultimately jeopardizing the financial health and integrity of the entire business.
Best Employee or Fraudster?
Let us portray how the “best employee” could be stealing money from your business. If you find the following unusual behavior in your best employee, they could turn out to be someone different than you thought.
Unusual working hours
When a single employee performs all of the bookkeeping functions, they might have to work long hours. Of course, that doesn’t usually turn out to be a problem. However, this routine could be a warning sign.
If an employee has a routine of odd working hours, there is a possibility that they are involved in fraudulent behavior with your business bookkeeping. If the employee regularly leaves late and works overtime without asking for extra pay, it could be a sign of “special interest” in your business. Like most of us, you think this is going in your favor, but the case might be the complete opposite.
Refusal to leave bookkeeping tasks to others
If an employee is working hard for a company but is unwilling to leave any accounting and bookkeeping work for others, a check on their activities must be kept. They might be involved in fraudulent practices. If the employee refuses to allow others to look at their work or regularly gets offensive when asked about it, this is a warning sign.
Too much access
If you have given too much access to your business’s financial bookkeeping, your business is already at risk of fraud. A single employee should not be given all access to receiving cash, payments, tracking expenses, and various other bookkeeping functions—delegate employees for different bookkeeping management steps. There should be separate people for bank transactions, expenses, receiving cash from customers, paying bills, and bank deposits.
Your trusted employee is spending lavishly
If your employee starts spending more than usual, keep a close eye on their activities in your business functions. They might be involved in some fraudulent practices. A fixed pay usually does not leave room for spending lavishly all of a sudden.
How to Spot the Fraud
The difference in accounting statements
Whether you have an electronic system or your accounting statements are done manually on a register, the financial statements should match the cash flow statements and balance sheet. In manual bookkeeping, there is always a chance of an honest error, but keep an eye on any difference in the number of accounting statements.
Match the transactions with real bills and invoices
If there is more than one payment for a single bill, it again might be a case of fraud. Keep an eye on the bookkeeping in your business. Check the bills for duplication.
Audit
A business ready for an audit at all times is a business with fewer discrepancies. Conducting regular audits will discourage employees from committing fraud or theft as there is more of a chance they will be caught.
Conclusion
Recognizing the “best employee” in a small business can be a double-edged sword. If you notice any concerning behavior, it’s important to take proactive measures to safeguard your business. By encouraging the division of job responsibilities, regularly reviewing monthly reports, and limiting manual payments, you can foster a healthier work environment and minimize the risk of unethical actions. These practices not only protect your business but also promote transparency and trust among your team.
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