10 Questions to Ask Yourself about Business Fraud and Employee Theft

Expense Management
By Team Bento June 15, 2017

10 Questions to Ask Yourself about Business Fraud

Find Out the Fraud Risk for Your Business and What to Do to Minimize It

Business fraud involves illegal activities that give a dishonest advantage to companies or individuals. Types of business fraud include:

  1. Payroll Fraud – These can involve pay advances that don’t get paid back or illegal payroll checks paid to individuals. It is twice as common in small businesses versus larger businesses according to the Association of Certified Fraud Examiners (ACFE).
  2. Check Fraud – This is a criminal act that can involve forged signatures on checks, altering check amounts, misusing stolen check stock or checks made out to fake companies. It is a common form of business fraud.
  3. Expense Fraud – This includes double deducting the same expenses, overstating expenses or dedicated schemes to steal large amounts from the company via false expenses. Some schemes require accounting personnel involvement.
  4. Kickbacks – This a form of pre-negotiated bribes where an employee is paid an illegal commission for some business service.

Business fraud and employee theft costs small business an average of $140,000 and usually takes one and a half years to uncover. Learn the signs of business fraud and how to prevent employee fraud with specific practical recommendations. To get your fraud risk score, check out the Bento fraud risk calculator.

1. Do you use an advanced accounting system that detects accounting fraud?

Yes – You are at a much lower risk of employee theft because you are using an advanced accounting system that helps detect fraud. The Association of Certified Fraud Examiners (ACFE), which is one of the top anti-fraud organizations in the US, says that only 65% of companies that were defrauded have this surveillance software installed.

No – You are at a much higher risk for internal fraud. When a company is trying to prevent fraud, one of the best tactics is to use automated surveillance via an advanced accounting system like QuickBooks® or other tools. The Association of Certified Fraud Examiners (ACFE), which is the top anti-fraud organization in the U.S., says that only 35% of companies that were defrauded had surveillance software installed. Two thirds (66%) of the fraud victims had no surveillance software installed. Those companies that had surveillance in place also reduced their losses by 60%.

For more information RE: Business Fraud:

2. Do your employees have company credit cards?

Yes – You are at a higher risk for fraud if employees have company credit cards. Credit card fraud is a menace to businesses and banks, responsible for billions of dollars in losses. Credit and corporate cards are commonly used by small and large business enterprises but are susceptible to both external fraud and internal abuse, just like a personal credit card. In the 2016 Nilson Report, it was stated that credit card fraud globally reached $21.84 billion USD and was expected to rise annually.

No – You are at a lower risk for fraud because employees do not have company credit cards.

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3. Do you reimburse employees for expenses?

No – You are at a lower risk for fraud if you do not reimburse employees for expenses. The Association of Certified Fraud Examiners reported that expense reimbursement fraud was 15.8% of all asset misappropriations in the U.S.

Yes – You are at a higher risk of fraud because reimbursing employees for expenses is a major source of employee theft. Using a business debit card with software that controls the card limits and categories greatly reduces this risk. The Association of Certified Fraud Examiners in the 2016 Report to the Nations highlighted that expense reimbursement fraud represented close to 16% of all U.S. asset misappropriations.

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4. Do you have an expense approval process?

Yes – You are at a lower fraud risk, because an approval process formalizes the expense handling procedures and creates accountability. A good expense approval process limits the use of personal credit cards, monitors credit card holders and implements a two-step procedure that reduces fraud.

No – According to Minnesota Society of Certified Public Accountants (MNCPA) and corporate expense software developer ExpenseOut, you are at a much higher risk for fraud, because without an expense approval process, there are many opportunities for losses. Employees can submit duplicates of the same expense, repeatedly submit an expense payment under a threshold so it goes unnoticed or falsely claim the wrong value for their expenses, to name a few of the issues reported.

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5. Do you have a stated expense policy?

Yes – You are at a lower risk of fraud because a stated expense policy keeps your business’ expenses under control, ensures your employees spend less and simplifies the reimbursement process. Consequently your business spends less money.

No – According to fraud forensics company Stonebridge, you are at a higher risk of fraud if you do not have a stated expense policy because you have no official way to control employee spending. Employees, part-timers and freelancers can charge for personal items, seek reimbursement for items never purchased or duplicate expenses. All of these add to the expenses of your company.

Also note that according to Fraud Forensic Services, having a formal company code of ethics can help lower your fraud risk. Companies need a specific policy regarding what behavior is and is not accepted at work as it can help to reduce the time to detect fraud by 50%.

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6. Can more than two people write checks or approve expenses?

Yes – According to the National Check Fraud Center and ACFE you are at a higher risk of fraud because there is less control of who issues checks. Employees can create counterfeit checks and these fraudulent checks are more difficult to detect.

No – According to the National Check Fraud Center, you are at a much lower risk, because you have more control of who issues checks and it’s much easier to detect fraudulent checks.

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7. Do you have a system to automatically enforce expense policy?

Yes – You are at a lower risk of fraud when you have a system that automatically enforces your expense policy. According to expense automation company, Chromeriver and the accounting firm Baker Tilly, you can more easily identify misappropriated funds and this can help reduce fraudulent expenses.

No – According to Chromeriver and the accounting firm Baker Tilly, you are at a higher risk of expense fraud when there is a lack of transparency with expense reporting. Automated systems provide greater visibility and can automatically detect and prevent certain types of fraud. They also reduce human error by moving away from manual expense reporting related to expenses.

The Association of Certified Fraud Examiners (ACFE) identified small businesses as being affected the most by expense report fraud. Smaller to medium size businesses averaging around 100 employees, saw losses of at least $30,000 per year.

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8. Do you validate receipts against policy and previous receipt submission?

Yes – You are at a lower risk of fraud when you validate expenses against a formal expense policy according to fraud forensics company, StoneBridge and certified accountants magazine CGMA. This is because a policy clearly outlines the boundaries for employee expenses, and acts as deterrent for fraud.

No – According to fraud forensics company, StoneBridge and certified accountants magazine CGMA, you are at higher risk of fraud. This is because without an expense validation policy, employees can falsely claim reimbursements not related to work or claim duplicate expenses more easily. Moreover, the ACFE says that without a validating policy for expenses you increase risk of multiple reimbursement schemes, fictitious expense schemes, overstated expense schemes or mischaracterized expense schemes.

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9. Do you use cash, checks or gift cards to manage any of your expenses?

Yes – According to the Minnesota Society of Certified Public Accountants, you are at a higher risk of fraud because cash and checks are not trackable in real time. Any inappropriate or unauthorized spending can occur. Furthermore, petty cash theft and duplicating checks are the most common forms of business fraud.

CPScard reports that employees account for more than 60% of gift card fraud in the US. The ACFE states that petty cash fraud is still 12% of all business fraud domestically. Also, according to business network Fox Business, cash theft accounts for 40% of all business fraud. Overall 18% of business fraud is of products sold by the business, 12% is materials from production of a product and 8% is of company tools stolen by employees.

No – You are at lower risk of fraud because your business has less avenues for fraud by not using cash, checks or gift cards for expenses.

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10. Do you do surprise bookkeeper audits?

Yes – According to auditing firm Maxwell & Locke Ritter you are at a 58% lower risk of fraud because surprise bookkeeper audits are one of the best ways to detect fraud, especially accounting fraud and collusion. Even the simple threat of a potential audit can deter fraudulent employee behavior, according to Alex Helfand, ENCE, Computer Forensic Specialist. While unscheduled they should occur regularly.

No – According to auditing firm Maxwell & Locke Ritter you are at much higher risk of fraud. Surprise audits are one of the most underused and effective fraud prevention methods. Fraud perpetrators can anticipate scheduled audits and can cover their tracks. In ACFE’s Report to the Nations on Occupational Fraud and Abuse the research shows that only 31.8% of American companies that were affected by fraud used surprise audits as a form of anti-fraud control.

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Bento for Business

Bento for Business offers a prepaid debit card for business that allows you to control how and where employees can pay for expenses greatly lowering your fraud risk. The card lets you specify a driver can only use the card at gas stations with a limit of $50 per week or an admin person can only spend $200 per month at office supply stores. If there is ever any misuse, you can shut off any employee card with your phone within minutes. There is no credit check, no interest charged and no credit limits. We offer free 60-day trials and you can call us today at 866.220.8455 to find out more and our helpful customer service reps will answer any of your questions.

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