Employee fraud is an expensive problem for businesses both large and small. An ACFE report shows that organizations around the world lose an estimated 5% of their annual revenue to fraud – that comes out to about $3.7 trillion!



Face it – you cannot run your business on the honor system.



But you can prevent employee fraud by knowing what to look for, paying attention to what’s going on in your company, and setting precautions so would-be thieves never get the chance to take advantage of your business.



Types of Employee Fraud to Look Out For



You’ve probably heard those employee fraud horror stories, such as the one about the Minnesota Delta Airlines employee who stole over $22 million over 9 years by approving fake invoices from his friend’s imaginary company.



Gigantic companies are not the only businesses at risk for employee fraud. Fraud comes in many forms. If you’re only looking out for millions of dollars missing from your company, the smaller, less-obvious cases might happen right under your nose.



Payroll fraud makes up 12% of fraud cases, and they’re reported twice as often in small companies with less than 100 employees. Some examples of payroll fraud include adding extra hours to timesheets, creating a fake employee and collecting their paychecks, and creating fake or inflated invoices or sales orders.



It’s not just cash that internal thieves are after. Some steal products and materials, and may sell them for a personal profit. Others steal office supplies, or use their paid hours to work on their own personal projects or business, or simply waste time goofing off while they’re on the clock.



Intellectual property theft is a very real threat, too. Secret ingredients, software, marketing tactics, manufacturing processes and other ideas can be vulnerable to theft. Your employee could take your ideas and start a new, competing company, or they might get hired by your competitor and use your ideas to put you out of business.



Know Your New Hires



While not all dishonest employees have a record of theft or fraud, it’s important to do your homework on new hires before you make the final decision.



You can conduct background checks that may include checking your employee’s criminal records, drug tests, and reviewing their driving records. You may also want to call up the schools and past employers listed on employees’ resumes to verify that the information is truthful.



Set Up Checks and Balances



Payroll fraud is an easy crime to pull off when there’s just one person managing your business’ accounts. Many small businesses can only afford to depend on just one employee for all of their bookkeeping, and that’s a huge mistake.



You can set up checks and balances to prevent payroll fraud. Make sure financial and operational responsibilities are shared among multiple employees. Conduct regular checks and audits, and make sure employees with these duties take vacations, so it will always be easy to detect if anything is amiss.



Create a Code of Conduct



Even tiny businesses should have a Code of Conduct. A Code of Conduct clearly states your expectations and guidelines that your employees must follow. It can include a dress code, sick day procedures, holiday policies, and any “dos” and “do nots” that your employees should be aware of.



While it should be obvious, some employees do not realize that they shouldn’t waste time on the internet at work or take office supplies home. By creating a Code of Conduct, you can make your expectations clear. Be sure to distribute the Code of Conduct upon hiring, and review it with your employees at least yearly. Have employees sign the Code to confirm that they have read it and agree to comply.



Get It in Writing



Upon hiring your employees, make sure to have them sign a nondisclosure agreement. This agreement can prevent employees from sharing confidential information with anyone outside your company.



You may also use a non-compete agreement to prevent your employees from working for one of your competitors in the same industry. You can take quite a loss when your best employees use your training and your ideas to work for your rivals.



Trust is Everything



An ounce of prevention is worth a pound of cure. Make sure the employees you hire are trustworthy, upstanding citizens. While you can’t learn absolutely everything about them during the interview process, if anything raises a red flag, don’t ignore it.



The same goes for the partners and vendors you work with. You can’t afford to work with anything less than the best, more honest people when it comes to your payments. Our whole philosophy at 360 Payments is built on transparency, truthfulness, and putting our customers first. Give us a call at 1-855-360-0360 or drop us a line on our website. We’d love to show you how we can be a true partner for your business.



PS – Our COO Derek Distenfield wrote this blog about the ethics issues he sees in Silicon Valley startups and how 360 Payments is different.



PPS – Part of avoiding employee fraud is building great relationships with your employees. Here’s how.