Anti-fraud policies: Why your business needs one -- Career Center Blog

July 5, 2011

Anti-fraud policies: Why your business needs one

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By Michelle Goodman
NWjobs

On career websites like this one, Independence Day often conjures up talk of starting one's own business. In fact, my esteemed colleague Randy Woods wrote an excellent post on the topic yesterday.

[Flickr photo by timlewisnm]

For many new business owners, the plan is to grow to the point of being able to hire staff. But what happens two, three, or five years down the line if your burgeoning business gets blindsided by one of its own? What if you learn that one of your trusted employees has been helping herself to business funds?

This week's Ethicist column in the New York Times Magazine got me thinking about how many small businesses are ill-equipped to deal with employee theft. The column advises a chief financial officer on how to handle a bookkeeper who's been caught charging nearly $50,000 in personal purchases on the company credit card. Although the embezzling employee was fired and paid back the stolen funds in exchange for the company not pressing charges, the CFO wanted to call her family to ensure they knew about her transgressions. And he wanted The Ethicist's assurance that doing so was, well, ethical.

According to The Ethicist, since the company had already struck a deal with the former bookkeeper and closed the books on the matter, informing her family of her improprieties would not be ethical. (You can read the entire line of reasoning here.) But to me, the real takeaway was how a company that had grown large enough to employ a CFO still had not hashed out a solid policy for dealing with fraud in its ranks.

This is hardly a surprise. According to the Association of Certified Fraud Examiners, which puts out a massive report on occupational fraud every couple of years, small businesses are especially vulnerable to employee theft. "In general, these organizations have far fewer controls in place to protect their resources from fraud and abuse," wrote the ACFE in their 2010 Report to the Nations on Occupational Fraud and Abuse.

In fact, the ACFE reported, 31 percent of all occupational fraud is committed against small businesses. What's more, when a small business gets swindled by an employee, the median loss is $155,000. That's a lot of money for a scrappy startup to lose.

Although unpleasant to think about, small businesses need to take steps to ensure their employees remain honest. And as The Ethicist suggests, businesses need to have policies in place to identify and deal with workers who defraud them. It's kind of like writing a will or purchasing life insurance -- creepy and mildly depressing, but at a certain point in one's life, often the responsible thing to do.

Small business owners, do you have any procedures in place to protect your firm against fraud? How about to deal with employees found with their hand in the cookie jar?

Michelle Goodman is the author of "My So-Called Freelance Life" and "The Anti 9-to-5 Guide." E-mail Michelle at mgoodman@nwjobs.com