Working in tandem with attorneys and investigators, we conduct fraud investigations that will determine the extent of the fraud, create an evidence package and report that can then be given to police and prosecuting attorneys, and lay the groundwork for civil remedies.
Given our extensive knowledge of employee fraud, we’re uniquely positioned to help businesses implement safeguards that can prevent such malfeasance in the first place. We offer both one-time and ongoing services to safeguard business operations.
A Problem You May Not Know You Have
Employee embezzlement – whether via billing fraud, bribery and corruption, check tampering, skimming, or expense reimbursement fraud – has become a rampant and costly problem for small businesses. Recent data indicate that nearly 32 percent of companies having fewer than 100 employees suffered a median loss of $147,000 as a result of employee fraud, a significantly higher rate than that of larger companies.
When confronted with fraud, the strongest course of action is to investigate the malfeasance diligently and pursue criminal and civil sanctions against the employee. Unfortunately, most small business fraud victims do not report the crime due to embarrassment, privacy concerns, or as a concession in negotiating a restitution agreement.
As a result, the official number of victims and the amount of losses are believed to be significantly understated. Under-reporting also means many perpetrators are never prosecuted, allowing them to jump to other employers who might otherwise discover their criminal behavior through a pre-hire background check.
Profile of a Perpetrator
Perhaps the most shocking aspect of small business fraud is that most perpetrators had been with their companies between one and five years, were college educated, and were employed in the accounting area. Most were first-time offenders.
In short, perpetrators are usually highly trusted, respected employees. They’re often driven to steal by opportunity, motivation, and rationalization.
- Opportunity, for example, might consist of unsupervised access to information, passwords, register tills, or blank checks. This explains why perpetrators often occupy positions in the accounting or bookkeeping departments.
- Motivation is best understood as an incentive or pressure compelling the employee to steal. Examples might be a gambling addiction, compulsive spending, onerous child support obligations, or large medical bills or other insurmountable family expenses.
- Rationalization is the justification an embezzler will make when he attempts to harmonize his illegal act with his personal code of ethics. Red flags can include comments or actions by the employee that project an ends-justify-the-means attitude, or where the employee has a heightened or misplaced sense of entitlement.
Prevention Is the Best Remedy
What can a small business owner do to prevent employee theft and embezzlement? A good place to start is to strengthen what are known as internal controls over the company’s accounting and bookkeeping procedures.
One of the most basic safeguards that can protect against fraud is establishing a workable separation of duties. Among the parameters to consider:
- Accounts payables and accounts receivables should never be handled by the same person. Bank deposits, for instance, should never be managed by the same person who signs checks.
- Likewise, bank accounts should be reconciled by a third person not involved with payables or receivables.
- Unannounced informal audits can also act as a sobering disincentive to a potential perpetrator as well as reveal an ongoing fraud.
Aho & Associates can work with your company to create an effective set of internal controls that enable fraud prevention.