WATCHING FOR EMPLOYEE FRAUD

Most employees are honest - but no company is fraud proof. If just one person has the desire and opportunity to take advantage, the losses could become substantial.

Not only is there the loss from theft or conversion, but frequently customers become involved or aware of the problem. The publicity, with customers and the public, can easily offset the best public relations efforts.

While losses may be insured, there is no reimbursement for aggravation, stress, personnel and accounting time. Furthermore, some theft is not clearly identifiable, or discoverable, and therefore will not be reimbursed by insurance.

There are those who believe that even where insurance or restitution is received, only a small portion of the losses are identified and recovered.

SCREENING PROSPECTIVE EMPLOYEES

The first step is to try not to hire or retain people who may have been involved in a company theft, embezzlement or kickback scheme. Checking references is vital.

Having an Employment Application provide notice of bonding and background checks may discourage some prospective employees.

NEWLY HIRED EMPLOYEES

After a person has been hired, check former employment, personal references and whether they completed the education as claimed.

INSURANCE COMPANY SCREENING

Some insurance companies, when bonding employees, ask them to fill out separate forms. Depending on the amount of coverage, they may run background checks with the appropriate notification to the employee. This practice may discourage a person from accepting a position or help them to decide the new position “Isn’t quite what I want.”

PURCHASE INSURANCE

Purchasing employee dishonesty coverage is not expensive, although the cost varies based on the type of business and number of employees.

Check out current coverage with your property and liability agent and ask for a written explanation of what is covered and for what amounts. If further coverage is available in amounts or nature of protection, be sure to get cost figures. It may be much cheaper than you think to improve coverage.

Be sure to ask at what levels the insurance company would want to run background checks on key employees. This can be a great benefit since they have information sources not available to most employers.

KEEP ALERT FOR SIGNALS

If your operations exhibit any of the symptoms of fraud listed below, you may want to investigate further:

• Fortuitous fluctuations in sales
• Top performance by a new salesperson
• Inventory overages when shortages are expected
• Increases in past due accounts
• Common names or addresses for refunds
• Excessive voids or refunds
• Adjustments to receivables
• Records copied over for neatness' sake
• Adjusting entries lacking formal approval
• No collections on past due or written off accounts
• Employees keeping records at home to work on
• Old outstanding checks in bank reconciliation
• Presence of a “thief’s adding machine”
• Delivery location not your office, plant or job site
• Shortages on deliveries
• Deviations from specs on delivered goods or services
• Mysterious fire or burglary

Your Employment Application should provide an authorization for release of information and confirmation of prior employment or education. You may want to consider a clause that specifies misrepresentation on the application would be grounds for dismissal if hired and the discrepancy is discovered later. A better choice is to carefully screen applicants before hiring.

Frequently, a telephone call to a prior employer may get information that a written inquiry will not. Ask a question that gets the answer you need yet does not require them to divulge information:

“If you were me, would you be uncomfortable assigning __________ to handle large amounts of cash?”

“If you were me, would you be uncomfortable assigning __________ to handle extremely confidential and private records?”