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What are the Telltale Signs that Your Business is the Victim of Fraud?


Your business may have implemented procedures to help prevent bookkeeping fraud, but they're not 100 percent guaranteed to work. Nearly half of all small businesses experience some type of employee fraud for an average loss of $114,000. To avoid taking that kind of loss, you need to be able to spot the warning signs of employee fraud early on. Here's what to look for.

Too Much Access and Not Enough Oversight

No single employee should be responsible for authorizing payments and tracking expenses. If you delegate too much financial control to one employee, your company is already at much greater risk of being defrauded.

Because the employee is performing their assigned duties, this factor alone does not mean that they have acted dishonestly. However, you should audit their past work and implement new procedures to have at least two sets of eyes on every transaction.

Cash Accounts Not Balancing

Whether you use a cash register, have check deposits or receive funds electronically, you should carefully reconcile your cash balances against your sales and expenses. Look for both balances that are too low and too high.

Low balances seem like an obvious sign of skimming, but remember that honest mistakes can happen. This includes both incorrectly counting change and incorrectly entering sales as higher than they actually were.

High balances may be an indication that an employee is trying to make up for a past fraud. They could also just be a sign that the employee needs more training in proper cash handling and record keeping.

Refusing to Leave Tasks for Other Employees

An employee who wants to do everything themselves and never takes vacations may just be an overachiever. They may also be trying to hide a fraud.

Many frauds have been uncovered when a substitute bookkeeper can't reconcile the accounts while the regular bookkeeper is away on vacation or sick leave. If an employee shows reluctance to have others take over their work, be sure to find out why.

Family Troubles

Personal gain is not as common of a motive for fraud as you may think. A large portion of fraud is committed to provide for children or an ailing relative.

Understand what's going on in your employees' lives — this is a good management practice anyway. Offering even just emotional support to an employee who is experiencing difficulty can make it harder for them to rationalize a fraud.

By keeping up an ongoing dialogue, you'll also be able to spot any changes in their behavior that might suggest you need to take a closer look at their work.

Excessive Transactions

Multiple payments on single bills or numerous transactions to correct errors may signal more than incompetence. The employee may be trying to disguise payments to themselves, bury a fraudulent transaction in paperwork or cover up a previous fraudulent transaction.

If an employee is making more transactions than needed to accomplish a task, carefully audit their work and stress the importance of keeping cleaner books.

What To Do If You Spot Warning Signs of Fraud

If you spot warning signs of a potential fraud, remember that there is often an honest explanation that is more likely than the fraud. Approach the employee in a non-confrontational manner by asking them to help you better understand the transactions in question.

Even if you don't believe that a fraud has occurred, moving to outsourced accounting services can provide an additional layer of review and independence to help prevent possible frauds in the future.

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