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Small Business Digest


Internal Theft, Fraud Can Be Curbed With Smart Procedures

Many experts think the economy is rebounding. What is not declining is the number of thefts from employees, especially in small businesses.

A recent survey by this newsletter’s parent, Information Strategies, Inc. (IDI) showed the rate of discovered employee thefts actually went up in the first six months of this year.

According to a 2012 report from the Association of Certified Fraud Examiners (ACFE), "the typical U.S. business loses 7% of its annual revenues to employee fraud" and small businesses have the most cases and the highest losses."

Greg Jones, CEO of BookKeeping Express says keeping with the unfortunate truth that in any economy, even trustworthy employees will go to desperate measures, today’s economic situation is giving way to employee theft and fraud.

As he and others point out, occupational fraud is a significant threat to small businesses.

In fact, the smallest organizations suffer the largest median losses because these organizations typically employ fewer anti-fraud controls than their larger counterparts, which increases their vulnerability to fraud.

Small businesses with fewer than 100 employees are most vulnerable to occupational fraud, and have suffered the most with a median loss of $200,000. The most common of these small business fraud schemes were check tampering and fraudulent billing. Shoplifting makes up for the smallest amount of theft in a business.

Here are some of Jones’ tips for identifying and preventing internal theft:

  • In the case that inventory has increased or decreased yet sales have remained the same, it is likely that someone is being deceitful. A change in a standard operating procedure when it comes to bookkeeping reporting is always a cause for concern.
  • Small businesses should assign more than one person to keep track of bookkeeping, as theft is more likely if only one person is in charge. For example, BookKeeping Express has three levels of people looking at the books to ensure no theft and fewer mistakes. With more eyes approving the bookkeeping documents and procedures, there is less room for sneaky behavior and deceptive reporting.
  • Business owners can protect themselves by requesting backup documents to accompany unsigned checks and unapproved expense reports. The largest percentage of fraud was related to billing schemes where an employer unknowingly issued a payment by submitting invoices for fictitious goods or services, inflated invoices or invoices for personal purchases, misuse of the company credit card and check tampering. 
  • In addition to requesting backup documents, business owners should have their credit card and bank statements sent directly to their homes, and should initial all items so that the bookkeeper sees the owner has seen and approved them. 
  • Furthermore, outsourced bookkeeping is a safeguard to theft, as outside providers are usually credible and less likely to be dissatisfied with the organization to the point of theft.  
  • In the case that something looks wrong, bookkeepers should alert their supervisor as soon as possible. If it is the supervisor they suspect is behaving dishonestly, they should alert another superior they feel they can trust.

 Greg Jones, CEO of BookKeeping Express, the first US franchise focused solely on providing bookkeeping services nationwide.

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