5 Best Ways To Prevent Employee Theft and Fraud
Employee theft and fraud is one of the biggest headaches that plague business owners in Singapore. This is an especially significant concern for cash-heavy businesses like retail or Food and Beverage establishments. The statistics are not encouraging:
- Employees are up to 15 times more likely to steal than a non-employee.
- 1 in 5 businesses in Singapore have experienced some form of economic crime.
- Employee theft is the number 1 economic crime suffered by businesses in Singapore. It accounts for 65% of all crime experienced by business owners.
- Procurement fraud accounts for 35% of all economic crime experienced by businesses in Singapore.
Employee theft and fraud can materialize in a myriad of ways:
- Physical theft
- Embezzlement of funds
- Embezzlement of inventory
- Fraudulent charges (e.g. fake procurement orders, fake expense bills)
- Stealing valuable company information (e.g. customer databases, intellectual property, trade secrets, etc.)
We’ve compiled a list of 5 helpful tips that you can implement to prevent employee theft at your business:
#1. Install CCTVs
Make sure you install CCTVs in your business – particularly if you have cash registers – to ensure that you have a permanent record of what your employees have done during business hours. Make sure the CCTVs are directed at the cash register. If you sell goods, make sure that the CCTVs can capture all the areas where goods are sold. Don’t forget about the backrooms where you store inventory – make sure you have cameras there too.
The issue here is not about trust, but verifiability. For employees who have demonstrated themselves to be honest, you can certainly afford them the trust they deserve. However, you need to ensure that you have a means to verify their claims, no matter how trustworthy they appear. CCTVs are an affordable and highly effective first-step to prevent employee theft.
#2. Separate purchasing and payment roles
Make sure that you don’t have the same employee(s) doing the purchasing of goods/services, and at the same time handling payment for those goods/services. If you do, that’s a financial and corporate governance disaster waiting to happen! Employees who have both purchasing and payment powers can easily abuse their authority.
Here’s how potential fraud might occur:
Step 1: Employee submits a purchase order for goods/services to a fake company using. In reality, the payment details (e.g. bank account) are controlled by the deviant employee.
Step 2: The fake company “provides” the goods/services. In many cases, nothing is actually ever done.
Step 3: Employee approves payment for fake order. The money goes into their bank account.
Step 4: Unless you conduct a thorough investigation, the above purchases and payments will not raise immediate red flags during financial audits. It will appear that goods/services had actually been provided, with the proper accompanying invoices.
Such fraud is extremely common. If you don’t want your company to be taken advantage of by your own staff, make sure you have two different people (or more) handling purchases and payments. Purchases should be reviewed by a supervisor (or yourself, even), to gauge their usefulness to the company. Only after such a review has been conducted should payments be authorised. After payment is made, all orders of goods/services should be reviewed to ensure that the orders were actually fulfilled.
#3. If you sell products, use a proper inventory management system
Make sure you use an inventory management system to keep track of all the products you hold in stock, and all the products you’ve sold. Not only will this help in doing data analysis on what kinds of products your customers like, it will also help to prevent employee theft of your inventory. An inventory management system will help to keep track of every item that comes in from your suppliers (or that you’ve produced), and every item that leaves your store/warehouse.
An inventory management system will help you to reconcile all sales receipts with products sold. Make sure that the correct amounts were charged to customers for the products in question. If you see refunds being processed, make sure those refunds were legitimate. In 2018, a cashier at Takashimaya was found to have stolen from her employer by issuing false refund claims. The cashier then pocketed the money disbursed from these fraudulent refunds. The fraud went unnoticed for years because the employer did not conduct stock checks to see if the refunded products were actually returned! Inventory management software, coupled with basic inventory management practices, will go a long way to preventing employees from committing fraud against you.
#4. Perform both regular and surprise audits
You should perform an annual financial audit of all your company’s transactions. Hire an accountant to go through all your bills, purchases, inflows, and outflows – essentially every movement of money that’s ever occurred in the year. This will help bring to light any fraudulent transactions that may have occurred.
However, don’t just rely on the one yearly audit to make sure that your employees are behaving appropriately. It’s advisable for business owners to spring surprise audits through the year. This is especially important as your company grows and you hire more staff. If your employees know that you could spring a surprise audit on any given day, they’ll be much more cautious about doing anything suspicious. If you need to prove employee theft, here’s a handy guide. Surprise audits can act as a very useful deterrent to would-be thieves and fraudsters. Plus, they’re relatively easy to perform, and don’t cost much.
#5. Have fidelity guarantee insurance (AKA employee theft insurance)
No matter how many of the above precautions you might take, it’s still completely possible for employees to steal from your business. After all, you can’t monitor every last action of all your employees. For your staff to be productive and efficient, there has to be a certain level of implicit trust between employer and employee.
Of course, it is precisely this trust that unscrupulous employees will take advantage of. So what can business owners do, above and beyond the above security protocols? The answer lies in a fantastic business insurance policy called Fidelity Guarantee Insurance. A fidelity guarantee policy will pay for theft or fraud committed by employees.
For instance, if your employees steal cash from your register, fidelity guarantee insurance will pay the amount that was stolen from you. If your employee embezzles funds from your company by submitting fake purchase invoices, fidelity guarantee insurance will pay for the stolen funds.
Provide is the best place to get online fidelity guarantee insurance quotes. Save up to 25% on your premiums. Our online platform has lower overheads, so we pass every dollar saved back to you.