Business BANKING White Paper Series. Guarding Against. Internal Fraud

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1 Business BANKING White Paper Series Guarding Against Internal Fraud January 2013

2 Trust your employees. (But listen to your gut.) Who s most likely to steal from your business: A rough-and-tumble teenager with too much time on his hands? A seasoned criminal? A highly organized international crime syndicate? Maybe, just maybe, it s none of the above. In many cases, the people stealing from you are the same people clocking in every morning. It s called internal fraud, and it s quite common. Let s take a look at how it happens, and what you can do about it. Part 1 The hows and the whys of internal fraud. You can be sure the first case of internal fraud occurred not long after the first business opened its doors. And ever since, business owners have always accepted it was a part of the cost of doing business. Truth is, swindlers will always be around, trying to steal from their employers. But many cases of internal fraud can be avoided. That s why it helps to understand why and how fraud occurs.

3 Most experts agree that three things lead to fraud: an opportunity, a motive, and a rationalization. Here are a few classic examples: Opportunity Motive Rationalization Poorly secured supplies, software or equipment. Passed over for a promotion. I m underpaid anyway, they owe me this. Access to corporate checkbook. Overextended financially at home. I m drowning in debit, but the company has plenty of money. Unlocked petty cash box. Wants extra cash for shopping spree. It s just 100 bucks. No one will ever notice. Part 2 How to foil the fraudsters. As long as you own a business, you ll run some risk of being bitten by fraud. After all, people will always be people. But by taking a few precautions, you can help protect yourself.

4 Here are our recommendations for creating a fraud-free work zone: Stay involved. Sure, you re plate is already full. We get that. But a few extra minutes today could save you vast amounts of time (and probably money) in the future. If at all possible, sign off on all expenditures and review bank statements. Most importantly, ask questions. When employees think the boss is paying attention, they re less likely to be tempted. Checks and Balances. When only one person has access to a company s checks, accounting information, or valuable assets, it s a recipe for disaster. Create a system that involves multiple employees. Don t make it easy. If you have a petty cash box, lock it. If you have a corporate checkbook, keep it somewhere safe. Simply put, work to reduce the number of opportunities your employees have to steal from you. Even if you trust them implicitly, why tempt them? Leave a trail. No one loves paperwork. But there s a reason it s so vital, and fraud prevention is a prime example. Keep accurate records of everything from the petty cash box and corporate accounts to company assets like furniture and computing equipment. You see, when you know what you have, you re more likely to know when it goes missing. Protect yourself. Sometimes internal fraud can lead to external theft. Do you keep sensitive information on your customers such as credit card data or Social Security numbers? If so, make sure the information is well protected. And on top of that, see to it that you re properly insured against litigation that could stem from internal fraud. Set a good example. This one tends to be overlooked, but it s highly important: Be a good boss. If you don t want your employees to be unethical, then you shouldn t be either. When your staff sees you treating company property and company money with respect, they ll likely follow your lead.

5 Part 3 Take a deep breath and remain calm. The topic of internal fraud is enough to make even the most trusting business owners a little paranoid. But don t worry. Chances are, most of your employees are on the up and up. And, by creating a work atmosphere that removes temptation, you ll bring out the best in your staff. If you d like more information about the financial implications of internal fraud, feel free to contact one of our business banking specialists. They d be happy to speak with you.