Stop Employee Theft Cold!

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Last week I posted the startling statistics on employee theft. If you’ve got a business and aren’t concerned yet, I’ve got one more reason why stopping employee theft needs to be at the top of your ‘to do’ list in 2010. It’s estimated that 30% of all businesses that fail do so because of employee theft.

We all know that the #1 reason that businesses close their doors is because of lack of cash flow. But what caused the lack of cash? How sad to realize that it’s because of the ‘enemy within.’

Here are five strategies from Smart Business, Stupid Business due out Spring 2010.

Strategy #1: Hire the Right People

Do more than just check references. Do a background check on all employees who have access to inventory, accounting, or money. In fact, it is best to do a criminal check on all of them. You may also want to run a credit report on anyone who is charge of the accounting and money. Past mistakes are okay. Hiding them or lying about them is not okay.

If your prospect is going to lie on an employee application, he’s going to lie about other things as well.

Strategy #2: Maintain an Ethical Management Climate

There is a saying that the fish rots from the head down. That’s certainly true in a company. If the owners and managers are stealing from clients, vendors, or each other, there will be a climate of thievery. Only it’s not Robin Hood and his merry men, it’s a bunch of thieves who want your money. Set the standard and make sure your managers follow suit.

The best anti-embezzlement strategies start with you. Foster a no tolerance atmosphere.

Strategy #3: Make Anti-Fraud Policies Visible

As soon as you have more than a couple of employees, it’s time to roll out some highly visible anti-fraud policies and procedures. Prevention is always cheaper in the long run.

Set the tone for new employees on their very first day. Include loss prevention education in the employee handbook. Hold regular meetings. And periodically talk about loss, and how it impacts the business. Loss means lost profits, adverse publicity, and decreased morale and productivity. Give employees a way to anonymously make suggestions for better control and prevention. Make them your eyes and ears in a non-accusatory way.

Your anti-theft program should include, at a minimum:
• A statement that fraud, waste, and abuse, occur in nearly all companies.
• A statement that such conduct costs the company jobs and profits.
• A statement that your business actively encourages any employee with information to come forward.
• A statement that your employees can come forward and provide information anonymously and without fear of recrimination for good-faith reporting.
• An exact method for reporting, including a telephone number, name, or other information. You may want to keep the exact method low-key and not have people reporting to their immediate superiors.

Strategy #4: Enforce Mandatory Vacations

Most embezzlement scams need the embezzler present. The scams generally aren’t that sophisticated. Take the person out of the loop for a week, and the whole scam falls apart and is discovered. The enforcement of mandatory vacations will aid in the prevention of some frauds.

Strategy #5: Cross Training & Job Rotation

Cross training and job rotation also makes it hard for an embezzlement scam to work. Frauds are often detected during sickness or unexpected absences of the employee thief because the fraud requires continuous, manual intervention.

A middle manager of a successful company embezzled $1.6 million from his employer. Later, when asked what could have been done to prevent it, he replied, “If the company had coupled a two-week vacation with four weeks of rotation to another job function, my embezzlement would have been impossible to cover up.” He had been stealing money for three years.

The most effective things you can do to prevent employee theft deal with YOU. Stay present and involved in your business and make it very clear that it’s not okay to steal.

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