Is Your Business Ripe for Fraud?

Former FBI investigator offers tips on how to keep your company finances safe

Many small businesses get defrauded from the inside. Here's how to protect yourself.

Deliberate fraud costs companies an estimated 5% – 6% of revenues each year. And small businesses are often victims of such unethical behavior—particularly during lean times where employees serve in multiple roles and a smaller staff means less oversight. According to Joseph W. Koletar, a former FBI agent who now serves as a private sector fraud investigator, there are simple steps a small business owner can take to reduce his or her likelihood of falling victim to an employee looking to defraud the company.

Koletar, author of Rethinking Risk: How Companies Sabotage Themselves and What They Must do Differently (AMACOM, $29.95), points out that most perpetrators of corporate fraud do so not out of necessity but greed. He says the typical fraud perpetrator is between 45 and 55 years old, more than 90% of them have no criminal record, and 65% have college degrees. Another interesting factoid: Most have been with their company 10 to 15 years. “They’re not career criminals,” he says. “They’re your average, middle-class people who live in nice suburbs, love their kids and coach soccer.”

So what’s a small businesses owner to do? Here are a few things Koletar says entrepreneurs should be aware of:

Resources are available. Among them is the Association of Certified Fraud Examiners. Founded by a former FBI agent in 1989, the ACFE offers training, certification, conferences, and they publish a number of books geared toward small businesses. Another resource is the National White Collar Crime Center, which provides training, investigative support and research to agencies and entities involved in the prevention, investigation and prosecution of economic and high-tech crime.

Know the division of responsibilities.
If an employee or group of employees has access to a company’s finances, make sure that there’s always a good degree of oversight over them. Koletar says there was a case where an employee added a fictitious staffer to the company’s payroll, maxed out that imaginary person’s deductibles, and collected a refund from the IRS!

View bank statements.
Each month, have your company bank statement sent to your house, not your office. “That way you can look at it and say ‘Gee, we sent a check out on July 22 and I never heard of this company,’” says Koletar. “If one person is in charge of everything, they can play games.”

Use the exit interview.
“The exit interview is normally very perfunctory—hand in your employee card, sign some paper work, and walk out the door,” Koletar says. But employers should take the opportunity to ask the departing employee some basic questions about his or her colleagues, such as whether they noticed any disturbing behavior about their co-workers, recommends Koletar. “You might not get anything, but you may learn that Bob in accounting has a gambling problem and may be playing games with company money.”

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