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How to Guard against Fraud and Theft by an Employee

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How to Guard against Fraud and Theft by an Employee

There are several measures one can take in order to prevent incidents of fraud or theft by an employee. Easy measures that a business can take include:

  • Checking inventory on a regular basis,
  • Conducting audits,
  • Reviewing financial statements on a monthly basis, and
  • Performing daily reconciliation of cash.

However, there are other internal controls that a business owner can implement to guard against fraudulent behavior. Internal controls are measures that one can take to make certain that a company is operating effectively and efficiently, and is complying with laws and policies.

Create a Code of Conduct

Start by creating a code of conduct and instilling it within your employees. Writing down the code of conduct and posting it in a visible area will serve to remind employees to adhere to the rules and regulations outlined in the code. The code should also mention the unpleasant results of failing to follow the rules of the company. In this way, having a code that is conspicuously posted will serve to encourage honest and ethical behavior, and discourage misconduct.

Delegate Responsibilities with Caution

It is very common for one individual in a small business to perform many responsibilities. However, when there is no separation of duties, that employee may have too much access to company files and documents. This places the employee in a position where the can easily commit acts of fraud or theft.

For instance, a bookkeeper who is in charge of deposits, payments, and filing transaction documents is likely being given too much responsibility, as this places them in a position where they can easily commit embezzlement. It is best to have different employees handle purchasing and vendor payments, and accounts receivable and accounts payable. A business owner can have policies and procedures in place that will inform employees that they are not allowed to handle certain functions simultaneously.

Employ Genuinely Honest and Trustworthy People

If everyone were genuinely honest and trustworthy, then one would not have to be concerned about employee theft or fraud.  However, one can still lessen the chances of hiring a dishonest employee by performing certain background checks that may reveal any prior misconduct:

  • Criminal background checks for crimes consisting of acts of violence, theft, and fraud
  • Driver’s license check for several or severe violations
  • Verification of education
  • Verification of employment

Conduct an Investigation of Each Incident

Whenever an incident occurs, it is recommended that a business owner conduct a thorough and immediate investigation so as to learn all the facts of the case and be in a position to make an informed decision.

Seeking Legal Advice

If you think that one or more of your employees are committing acts of theft or fraud against your company, you should consult an employment attorney who can help you conduct an investigation into the matter, and file a civil and/or criminal action against the perpetrator.

Photo of page author Roxanne Minott

, LegalMatch Legal Writer

Last Modified: 09-23-2015 08:45 AM PDT

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