Fraud Alert: 10 Ways You’re Making it Easier for Employees to Steal from You

Whether or not you’ve stopped to think about it, small businesses are more vulnerable to internal fraud than their larger counterparts. This is because small businesses…

• Typically don’t have a budget for fraud detection.
• Rarely have official policies in place for handling funds, checks, reimbursements, and bills.
• Often rely on trust rather than clearly defined documentation, rules, and consequences.

These attributes have real-world consequences. The Association of Certified Fraud Examiners found that the median fraud-related loss for a small business is $150,000, the same as it is for the largest businesses. But $150,000 represents a far greater portion of revenue for small businesses, meaning they are facing an expensive cycle—not enough money for fraud prevention leading to significant fraud losses leading to even less money to prevent fraud, and so on.

The good news is that there are ways to make your business less susceptible to internal fraud. Read on!

10 Small Business Behaviors that Invite Fraud

By eliminating these risk factors at your business, you can help cut your exposure to expense fraud and potentially save your business a lot of money.

1. You’ve never studied or read up on internal fraud. If you didn’t study finance in school and you aren’t an accountant or bookkeeper by trade, there’s a good chance you’ve never thought much about expense fraud. But knowledge is power. Educate yourself about the basics of what fraud looks like and how you can prevent it at your business. (Tip: we recommend this book, which is engaging AND educational.)
2. You have no written policy for acceptable expenses. This is pretty normal at a small business – but as you grow, it won’t work. After all, how can you deny an employee’s unreasonable expense if you’ve never made it clear what’s allowed and what isn’t? Take a few minutes to write out guidelines about what the company will and won’t cover.
3. Your system for enforcing your expense policy is manual. Unfortunately, having an expense policy isn’t enough. You also have to enforce it. The good news is that Bento cards automate the process by letting you limit when, where and how much employees can purchase. In fact, the card actually does the enforcement work for you: it simply won’t work on purchases that don’t meet the preset requirements.
4. You rely on cash, gift cards, or checks to manage expenses. Most employees won’t take advantage of payment methods like cash or gift cards to buy things for themselves – but when you use these methods, you introduce a major source of temptation. Switching to a method you have control of and visibility into can help prevent leaks. And preventing even minor leaks can make a difference at small businesses.
5. More than one person can approve expenses or write checks. At a lot of small businesses, everybody pitches in. That may work in some areas, but when it comes to managing finances, it’s risky. Having multiple check signers means it’s easy for any of them to assume the other person saw / approved / understood an expense that would otherwise look fishy.
6. The person who opens the mail is someone other than the person who approves payments. Think about it: it’s much easier to conceal fraudulent activity if you’re the first person to open bills. To prevent important documents from going missing or being altered, make sure the person in charge of approving payments is always the first to see bills.
7. Bill pay is not automated. An even better way to prevent fraud is to cut paper bills out of the equation altogether. Most banks let you set up automated bill pay, and software like Bill.com and Hubdoc allow you to manage all your bills in a single place.
8. You never perform surprise bookkeeper audits. Remember pop quizzes? Surprise bookkeeper audits work on the same premise and are an excellent way to make sure there’s nothing fishy going on in your finances.
9. Employees have company credit cards. There’s nothing wrong with these cards per se, but traditional company cards make it easy for employees to spend money on things that aren’t strictly business related. For example, did you know that an employee who puts a $4.00 daily coffee on their business card costs you an extra $5,200 per year? And that’s a “minor” offense. Small individual expenses may not raise eyebrows in the approval process, but they can add up over time.
10. You reimburse employees for expenses. In its most recent report, the ACFE found that expense reimbursement fraud accounted for 15.8 percent of all asset misappropriations in the United States.

Measure Your Risk of Fraud

This is a lot to keep track of, especially if you don’t have a financial background. If you’re interested in getting a more concrete analysis of your specific fraud risk, check out our fraud calculator, a two-minute quiz that lets you see where your greatest fraud risks lie.

Once you answer the tool’s 10 questions, you’ll get a risk-level analysis and explanation of how various business activities might be helping or hurting you so you can take action to shore up your finances and eliminate fraud.