A Fraud Prevention Case Study

When small business owners are aware of the risk of employee theft, embezzlement— and other misallocations of funds— they can take steps toward fraud prevention. One case in Bloomington, Minnesota illustrates how important theft prevention measures are for small businesses. Business owners should take the time to vet their prospective employees and make certain to review expense receipts and reports on a regular basis.

The devastating cost of fraud— why you should protect your business

Service Quality Institute is a small business that is located in Bloomington, Minnesota. The company serves as a consultancy to other businesses, helping to build their customer service sectors. John Tschohl, the owner and president of SQI, lost more than $330,000 in little less than two years. His bookkeeper, Laura Scholz, started stealing money from his company. She used a variety of embezzlement schemes, including taking money from company checks and falsifying their purpose in the company’s books. The thefts began immediately after she became the only bookkeeper for the company in August 2011— after working for a few years as the assistant bookkeeper. Her thefts went undiscovered until Julywhen Tschohl tried to account for a $49,000 wire transfer.

Steps toward fraud prevention could stop embezzlement before it happens

Scholz used several methods to steal money from the company. Tschohl says that she would write checks to the company from a Philadelphia bank and then cash them at SQI’s credit union, pocketing the cash. She would then falsify the accounting records at the company. Tschohl says that he reviewed the company’s credit card statements every month and challenged anything that didn’t appear right, but he never did so with the business’s checking account. Tschohl states that later in her embezzlement scheme, Scholz began falsifying the records to show that the company vendors and rent had been paid, stealing the money for those expenses instead of paying them. When her theft was discovered, the company was $10,000 behind in its rent payments.

Importance of criminal background checks as a fraud prevention measure

Tschohl says that he wants other small business owners to learn from his own mistakes. He said that he didn’t perform criminal background checks on any of his employees, which can be done quite inexpensively. If he had conducted a criminal background check on Scholz, he would have learned that she had been convicted of credit card fraud at her last place of work. At that company, she used a company credit card to purchase around $2,000 in gas and merchandise over a period of four months without the company’s permission.

Fraud prevention: How can you protect your business?

In order to protect your business, it is important for you to institute some fraud prevention measures and to understand the different schemes that thieves use. Within your business, you should institute a training program for your employees so that they understand the signs of internal fraud. Institute a whistleblower program so that employees are likelier to report fraud when they encounter it. Make sure to inspect all of the invoices that your company receives and regularly review your company’s credit card and checking account statements, watching for any discrepancies. Conduct criminal background checks on all of your employees, and continue watching their work to make certain that they do not steal from the company. If you discover a fraudulent invoice, file a complaint against that company with the Better Business Bureau and the Federal Trade Commission. If you find that an employee has been stealing money, report it to the police.

Bento for Business can help with theft prevention

Choosing business debit cards from Bento for Business may also help to prevent internal fraud. These cards allow you to deposit money and then limit the amount and type of spending that the cards can be used for, depending on your individual employee’s occupational duties. For example, one card can be set to only pay rent and utilities while another might be used only for gas purchases at the pump. The cards use a highly secure SSL-encryption and allow you to constantly and quickly track your expenses 24 hours/day, 7 days/week. Start your free 60-day trial today or call 866.220.8455 to learn more.

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