We have always tried to foster a “family business” vibe in our small business. We try to create a nice work environment and get to know one another, and try to be open and sharing with each other. Sounds like a family owned business too, right?
Did you know that 29% of small or family owned businesses have experienced some sort of fraud, whereas only 20% of larger businesses have had a fraud incident? Surprising until you think more about it. We all seem to trust our family more than strangers or acquaintances. In business, as trust increases, security measures decrease. Why bother with an added security expense when you really don’t need it! You trust him/her because they are like family, or are family. But sometimes that “family” person may feel underpaid or underappreciated, and start plotting some revenge. They figure they are owed more. They also figure that, even if they get caught, it will be too embarrassing for the family to press formal charges or get the law involved. So the gain outweighs the pain.
The median fraud loss for all businesses is $150,000. For a small company this can be devastating! There is also damage for the public perception of the fraud incident. The public will look at large companies can call it an isolated incident. But they will look at a small company and see an organizational problem.
So, what can we do as business owners? Here are a few ideas that you should implement:
Segregate the accounting duties. Many small companies have a one person bookkeeping department, and they do all the deposits and write all the checks and take care of the payroll. If you cannot afford to have a second person, then you should receive your bank statements directly and unopened. At least you will get to see all the money transactions that occur each month. Review each cleared check to make sure the vendor is familiar to you and the check is properly endorsed. Question any new or unfamiliar vendors to make sure they actually exist and you do business with them. Another good check and balance is to have someone other than the payroll person receive and distribute all the paychecks or paystubs. Again, make sure you know who your staff is. For management purposes, it also gives the owner some good face time with their staff.
Check out all fraud related tips. Years ago, we had a fraud incident happen and I was shocked that the guilty person would do such a thing and jeopardize their job. My initial thought was that investigating would be a waste of time, but we went ahead anyway, and sure enough we found evidence pointing to the guilty party. Some companies set up anonymous hotlines to encourage people to report fraud.
Buy crime insurance. You can purchase fraud protection insurance and employee dishonesty insurance. Discuss with your insurance agent what limits you should buy.
Your business is your livelihood, and you need to protect the best you can. You never know who or when someone may disappoint you with an inappropriate action. Please feel free to ask us about insurance to protect your business, or to review your current polices even if they are with another agency.