Businesses experience many types of theft and fraud on a daily basis, regardless of the nature or size of the company. This fact sheet reviews various types of theft and fraud and what you can do to protect your business.
The Association of Certified Fraud Examiners studied employee theft, and provided insights on how this problem is affecting companies globally. The average loss per business in their sample size was $140,000. More than one-fifth of these cases caused losses of at least $1 million. Here are the highlights of their findings:
- An organization typically lost 5% of its revenues to fraud each year.
- Small businesses suffered the most because they implemented fewer anti-fraud controls and had smaller profit margins.
- The frauds lasted an average of 18 months. Detection was most often by a tip from another employee.
- Employees with higher levels of authority tended to steal more. The longer the employee worked for the company, the higher the losses.
The Difference between Theft and Fraud
Theft and fraud are both criminal acts based on stealing. However, fraud is followed by an attempt to hide the crime. Theft occurs in the moment with no attempt to hide the loss of the victim. For example, theft occurs when a bank is robbed by a stranger, and fraud could occur when employee embezzles money from the bank by falsifying records.
Generally speaking, theft and fraud are similar, and both require preventative measures to mitigate unwanted losses of funds and assets.
Internal theft is committed by someone working inside your business.
Tips for preventing internal theft:
- Set a good example. Your employees watch what you do and are prone to imitate your habits – good or bad. Build up rapport with your employees so that they feel free to discuss important matters with you in confidence. You may be able to detect signs of their own financial or other personal problems.
- Check references when hiring new employees and consider doing background checks.
- Spot check your accounting processes. You can do this yourself, or you can hire an independent bookkeeper.
- Segregate duties. For example, the person responsible for receiving cash should not also be responsible for reconciling receipts. Make employees responsible for their own cash drawers.
- Be clear and consistent when communicating your policies regarding internal theft and deal with any issues quickly and fairly. Keep in mind that settling for repayment and an apology is inviting theft to continue.
- Make sure that an employee in a position to mishandle funds is adequately bonded. Let employees know that insurance coverage is a matter of company policy rather that any feeling of mistrust on your part.
- Either personally prepare the daily cash deposits or compare the deposits made by employees with the record of cash and cheques received. Make it a habit to go to the bank and make the daily deposit yourself as often as you can.
- Personally approve unusual discounts and bad debt write-offs. Approve or spot check credit memos and other documentation for sales returns and allowances. Examine invoices and ensure that all merchandise was received and the price is correct.
External theft is committed by someone who does not work for your business. This theft could be the result of a fraudulent return, a customer shoplifting, or a break in.
Tips for preventing external theft:
- Provide excellent customer service. Attentive and helpful employees encourage legitimate customers and deter shoplifters.
- Install a security system and always respond to security alarms.
- Minimize blind spots and ensure that all parts of the store can be easily seen. Security mirrors and surveillance cameras allow your employees to monitor the premises and send a signal to potential shoplifters that they are being watched.
- Keep track of your inventory and follow up on any discrepancies.
- Make deposits during the day and vary the deposit time and the route you take to get to the bank.
- Be sure to use the right kind of lock on your doors. Under standard burglary insurance policies, evidence of a forced entry is necessary to collect on burglary insurance.
- Issue as few keys as possible. Keep a record on the keys you issued. Whenever a key is lost, or an employee leaves the firm without turning in his or her key, re-key your store.
- Be sure the safe in which you keep your money and other valuables is strong enough to deter burglars. Money should be protected in a burglar resistant chest. Bolt the safe to the building structure. Make it a rule to keep your safe locked even during business hours.
- Leave the “cupboard bare” which means keeping as little cash on hand as possible. Deposit excess cash each day. You could also leave your cash register drawer empty and open at night.
- If possible, remove attractive and expensive merchandise from the window at night.
- Train to reduce risk. You should let each of your employees know what may happen and how they should act if a robbery occurs. Emphasize the protection of lives as well as money. The heroic action by an employee or customer may end up deadly; assume the robber is armed or dangerous.
- Do not set up cashier operations so that they are visible to outsiders. The sight of money can trigger crime.
- Opening or closing the store is a two-person job. This also prevents internal theft as employees tend to feel accountable to each other.
- Plan the store layout with deterrence in mind. Maintain adequate lighting in all areas of the store for better visibility. Keep small items of high value behind the counter or in a locked case.
An effective theft prevention plan can identify risks and improve security. Remember to keep your employees involved and make sure they have the tools and training they need to protect your business against theft.