So, you are looking to hire a new employee or two. Your business is growing and you need the extra help keeping everything going. You know all about the process of hiring someone to join your team, but are you aware of the risk? Do you have things in place to prevent employee fraud?
Roughly 2 out of every 3 U.S.-based small businesses will experience employee theft or fraud. Talk about added stress to the hiring process. But with a client base that is quickly growing, most businesses cannot afford to forgo hiring someone. They either fail to meet their customers’ demand, which is bad for business, or accept the increased risk of fraud/theft, which is also not good for business.
Most of the time fraud comes from ‘misappropriated assets’. What does that look like? It looks like someone pocketing cash from the drawer, or making fake payments from the business account. It looks like someone misuses or steals something from the company to sell somewhere else.
Did you know that billing and payroll fraud are 2x more likely to happen in a small business than in a larger company? Check and payment tampering are 4x higher as well.
Now, we just dumped a lot of unsettling information on you in a short amount of time. We promise, we are not trying to scare you. As a business owner, you need to be aware of the reality you face when hiring and managing employees.
There is no need to be all gloom and doom, though. Once you understand how this problem occurs, you can start doing something about it. And you do not have to do it alone.
How does employee theft happen?
You may be thinking to yourself “oh, I don’t need to worry about this. We have policies and procedures in place to prevent fraud/theft!” That may be true, but sometimes those are not enough. If you do not have things in place to enforce those policies, people can easily bypass them with you being none the wiser.
It is really easy to get away with something when the only thing in place to prevent you from doing it is a line on a piece of paper that says “no, don’t do that.” Or maybe there is some kind of control in place, but it is really easy to override.
These problems happen in businesses of all shapes and sizes. Smaller companies don’t have the internal controls set up to keep people in line. Meanwhile, larger companies have controls, but those controls are easy to bypass or override when no one is looking. Having an effective system in place to prevent theft can be tricky, but it is undeniably important if you want to protect your business.
Step one: document your accounting and bookkeeping policies and procedures.
Before trying to implement any kind of internal controls, make sure you have thoroughly documented ALL of your policies and procedures for how to handle:
- cash receipts
- disbursements and payments
- record keeping,
- accounts payable,
- accounts receivable,
- fixed assets,
- purchasing and inventory,
- financial reporting,
- information security,
You may be asking yourself “why do I need to have all of this written down?” The answer to that is simple.
This is how you make sure everyone is on the same page when it comes to the rules, regulations, and expectations. The way your company handles its finances shouldn’t be a total mystery to your employees. Make the documents are accessible for day-to-day guidance. If people can easily refer to them, they are less likely to forget them or “forget” them.
There is another plus to having this documentation accessible to everyone. Say someone has to step back from work for a while, or they leave the company entirely. If no one knows how to do what they do, you are up a creek. Having their process documented means you can easily transition a new employee into that position. All they have to do is learn the work flow, instead of having to frantically try and rebuild it from nothing. Which means things will get very messy very quickly and it will take some time to untangle. No one wants that.
Keep it updated as well, so the information does not become irrelevant as your process evolves. Otherwise, you will just create more problems.
Step two: divvy up all duties involving finances.
Have you heard of the term ‘divide and conquer’? Many times, it is easier to accomplish a large task when that task is broken up into pieces and divided among a team. You need to do this with your finances. Have one person do the bookkeeping, another authorizing disbursements and payments, another handling the financial reporting, etc.
Using a cloud-based program like QuickBooks or Xero means you can add in outside tools to help further automate your processes. This cuts down on potential data errors and makes your process more efficient. It also makes it harder for thefts to go unnoticed. You can build in and integrate internal controls using bookkeeping automation.
You can also assign different duties to different employees. It will further insulate you from the risk of error or fraud and theft. Having more than one set of eyes watching your numbers means fewer errors or “mistakes” will slip through the cracks. The sooner a mistake is caught, the sooner it can be fixed, the less time you will have to spend correcting things. Which means you have more time to focus on more important things.
Sharing the load will make everyone’s life easier. Especially yours.
Step three: onboard, train and supervise your employees
Onboarding is an important part of the hiring a new employee. It is where you ensure they not only have the training necessary to do their job, but also that they fully understand your process. This training is usually handled by their supervisor, who keeps an eye on things.
If you haven’t already, add compliance training to the regiment. Introduce them to your company’s policies and procedures when it comes to finances and your code of conduct and ethics. This way everyone knows exactly what is expected of them.
By periodically reinforcing those codes and expectations, you ensure that employees know what to do if they suspect someone is stealing. Make sure you have checks and balances put in place, along with supervision.
The more consistent you are with these procedures, the more eyes you have looking for incidents of theft, the harder it will be for people to get away with it. Which means, they are less likely to try.
Step four: Routinely review and reconcile records
It goes without saying that you should routinely review and reconcile your records to make sure everything has been properly processed, but we are saying it anyway. Always double check your records.
And not just the bank statements that you should be checking on a monthly basis. We recommend reconciling your timesheets with payroll, receipts with expense reimbursements, purchase orders with invoices, sales receipts with accounts receivables, etc. Also make sure to count equipment, inventory, cash and other property periodically and make sure the numbers and descriptions match your records.
The more often you check these things, the less likely it is that things will slip through the cracks. Be thorough. Your business will thank you.
Step five: Fraud proof, audit proof and disaster proof
This step is basically idiot proofing your system, and then some. Automation is a beautiful thing because it does all of the heavy lifting. Now you can spend less time trying to keep up with your financial data and, more importantly, less time trying to figure out where you messed up. Because we all mess up sometimes (often).
Automation = efficiency.
Less legwork. Less guesswork. Less room for error. All you have to do is review and reconcile your information. Trust us when we say this will save you a lot of time.
It also gives you an internal control system to further fraud proof and audit proof your books. It is a lot harder to cheat the system when information is added automatically. Especially when you have the division of labor already in place. And with all of your important information stored in the cloud, even if your physical copies get destroyed, everything is still safe.
A natural disaster can be devastating, but it doesn’t have to spell the end of your dream. Come hell or high water, your records will be safe and your business can continue to function and even thrive.
How at-risk is your business?
If you are like most busy business owners, you have likely been too busy running your company to devote much time to fraud proofing your business. And we can’t blame you. There are only so many hours in the day. We are entrepreneurs too, so we understand.
We know that you didn’t start your business to spend all of your time learning bookkeeping, running payroll or performing HR functions, like recruiting—let alone worrying about finding ways to prevent fraud and employee theft.
Here at HireEffect, we can evaluate and improve your internal controls while increasing the efficiency and effectiveness of your operating procedures with bookkeeping, billing, payments, payroll, etc. We put people first. That means, when we partner with you we provide advisory services and an ongoing means of communication that will add value to your business.
Our goal is to eliminate data entry using cloud-based technology, reducing bookkeeping and record keeping errors, ensuring accurate financial statements and making your business fraud-proof, audit-proof, and disaster proof.
How we can help:
We provide customized, outsourced solutions for bookkeeping, payroll, recruiting and talent acquisition, HR & talent management services that go beyond compliance. In addition, we offer Controller and CFO services as well as franchise bookkeeping services. We can do as little or as much as you need and want. Our ultimate objective is to help your business grow by getting you out of the back office and giving you the freedom to focus on customer-facing, revenue generating activities and strategic business growth. Contact us today.