How to Detect Theft in Small Business Accounts Payable

When times are tough, people can get disparate…. As the economy huffs and puffs along, it has left in its wake a surge in business theft, and this trend has had a disproportionate impact on smaller businesses. According to the Association of Certified Fraud Examiners (ACFE), employee theft at businesses with less than 100 employees cause an average loss of $200,000; that’s $57,000 more than the average loss of bigger businesses.


A while back I did a series on employee theft in general- what the effect is, how to spot it, and how it can be prevented within a small business. Recently, much attention has been given to the rise in reported incidents of accounts payables fraud within smaller businesses; so I thought it would be a good idea to cull a few tips on how to spot this kind of fraudulent activity based on the advice of ACFE and experienced auditing companies.

Here are a few telltale signs to look out for:

  1. Duplicate or similar payments. One glaring red light is repeated incidents of duplicate payments being made for the same or similar amount, to the same vendor, and/or with the same or similar date.
  2. Invoices just below approval limits. Repeated invoices set at amounts that lie just below the threshold for managerial approval- whether in terms of amount or billing cycle- should be flagged as questionable.
  3. Rounded-off billing amounts. The presence of invoices for rounded amounts- ie those rounded to the nearest dollar amount. May be a sign of fraudulent activity.
  4. Fishy vendor information. Some signs to be on the lookout for include: the absence of a phone number, or a home phone, multiple vendors with the same number, and phone numbers that always go to an answering machine; PO box billing addresses or billing addresses that are far away; mis-spelled or similar-sounding vendor names.
  5. Unusual invoice activity. Bursts or lulls in invoice activity, above average invoiced amounts, and activity occurring at abnormal times are all possible signs of employee theft.

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Employee Theft in Your Small Business: Tips for Theft Investigation

This is the final post in a four-part series on employee theft.

If you suspect that theft or fraud has occurred in your business, then you should promptly follow up with a thorough investigation. When done properly, an investigation can help you limit your loses and quickly resolve the situation.

First you need to determine what is missing or which reports or systems seem inaccurate This will help you to get a handle on the extent of the loss. Take stock of your inventory and check your financial accounting system for any unusual entries or changes in cash flow.

Second, you should try to figure out approximately when the theft(s) occurred and by whom. Make a list of all employees who could have had access to the missing items or information. In some cases, if you have surveillance cameras, it may help to review the tape to get an idea of who was around when the theft occurred

Finally, your investigation should end with either an employee interview or survey. Basically, you are looking to gather information from two distinct groups of people: those who you suspect may have been involved in the theft or fraud and innocent co-workers who may have some knowledge or suspicions as to who committed the act.

The interview and/or survey should be confidential. Employees should be informed that no co-workers will know what was said about them and that there will be no repercussions for sharing information.

Some questions to consider asking:

1. Do you know any employee(s) has stolen something from the business? What was stolen? When?

2. How do you think the theft might have occurred?

3. Has any employee acted differently before or since this theft that makes you think he or she might be involved? Who? How did they act?

4. Are any employees reluctant to participate in this investigation or encouraging anyone else not to participate? Who?

5. Which employees do you think might have committed this theft? Why?

6. Which employees do you trust? Why?

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Employee Theft in Your Small Business: Tips for Prevention

This is the third post in a four-part series on employee theft.

The Association of Certified Fraud Examiners (ACFE) in its Report to the Nation on Occupational Fraud & Abuse recently estimated that the typical business will lose an average of six percent of revenues from employee theft, and according to the U.S. Chamber of Commerce employee theft is major factor behind one-third of business bankruptcies.

The bottom line is that employee theft is serious business, and making a conscientious effort to prevent it deserves the attention of any small business owner who hires employees.

The following are a few tips to help you prevent employee theft in your small business:

Create an anti-theft policy.

Your business’ anti-theft policy should include several key elements. First, you should establish clear guidelines and procedures for handling inventory, supplies, equipment, cash, receipts, and any sensitive information. Describe what happens when employees are caught stealing from the company, including the process of warnings, firing, and pressing charges.

Keep in mind that your policy should address the most common forms of employee theft including stealing cash, inventory, equipment, or supplies, conducting shipping and billing scams, forging receipts, faking an injury and claiming compensation, and putting fictitious employees on the payroll.

You should also mention any internal controls your business has in place (such as installing cameras or conducting random audits) to prevent theft.

Make sure your employees understand the rules.

The most well thought out and comprehensive anti-theft policy will be limited in its effect if employees are unaware of the consequences of stealing from the company. All employees should receive the business’ anti-theft policy in writing, and every employee should be required to sign a form to verifying receipt of this information.

Screen your employees.

Running background checks on potential new hires may seem like a time consuming or costly process, but it will save you a lot of time and money in the long run should you hire someone who later proves to be problematic. Though you can never be completely sure that the people you are hiring will be trust worthy, by screening any new hires you can effectively reduce the number of dishonest employees that you bring into the business.

When conducting a background check be sure to look for any criminal records and involvement in lawsuits You should also verify their stated level of education and degrees at accredited institutions as well as an employment verification of positions, length of employment, and reasons for leaving.

Keep in mind that there are several companies that can run background checks for you. But you should still check the candidate’s references and talk to previous employers.

Monitor operations.

Keeping a watchful eye on your business’ operations will help you both prevent theft and spot any suspicious activity. You should also being setting up a system of internal controls with a focus on financial reporting and your business’ precious assets. Here are some common ideas:

  • Set up surveillance cameras, do a random walk-through in your business, and conduct unannounced audits and spot inspections.

  • Access to physical and financial assets as well as sensitive information and accounting systems, should be restricted to the employees you trust.

  • Establish an anonymous or confidential reporting system for employees, vendors, and customers to report any violations of policies and procedures without fear of repercussion.

Create a positive work environment.

Incidents of theft often go hand-in-hand with financial or emotional stress. As stress levels increase, so does crime. Make sure your employees feel valued and that the lines of communication are open- even if you have had to make reductions in employee bonuses and benefits. When employees trust their employers they are more likely to act in the best interests of the business.

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Employee Theft in Your Small Business: What is the Effect?

This is the second post in a four-part series on employee theft.

As the economic recession churns on and countless Americans struggle to get some control over their mounting debt, incidents of employee theft and fraud are becoming more and more common. The FBI even calls employee theft “the fastest growing crime in America,” and this trend is having a devastating effect on small businesses.

Although employee theft may immediately be associated with pilfering inventory or stealing cash, there are actually several ways that employees can steal from their employers. The Boston Globe and Denver Post recently reported that U.S. companies lose nearly $400 Billion per year in lost productivity due to loafing (“time theft”). Some of the more sophisticated examples of employee theft include: conducting shipping and billing scams, forging receipts, faking an injury and claiming compensation, and putting fictitious employees on the payroll.

The Association of Certified Fraud Examiners (ACFE) in its Report to the Nation on Occupational Fraud & Abuse recently estimated that the typical business will lose an average of six percent of revenues from employee theft. The report also indicates that small businesses are especially vulnerable to occupational fraud since they generally have the limited resources to devote towards crime detection. The average loss suffered by businesses with fewer than 100 employees was $200,000, which was significantly higher than the average loss in any other category, including the largest businesses.

Moreover, a U.S. Chamber of Commerce survey recently reported that a staggering one-third of business bankruptcies are attributed to employee theft.

Employee theft often goes beyond loses in time, money, and resources, it can also tarnish a business’ reputation as a provider of quality products and service. At a time when every dollar, and every customer counts, the way a business responds to incidents of employee crime may make the difference between staying afloat and sinking.

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Employee Theft in Your Small Business: What Are the Causes?

This is the first article in a four-part series on employee theft. In this series I will cover some of the major causes of theft among workers as well as the extensive and often disastrous effects these occurrences bring to smaller businesses and their customers. Finally, I will end this series with some tips for theft prevention in addition to a few tips on conducting an investigation should you suspect employee theft or fraud within your business.

With all the alarming and emotionally-charged news out there clamoring for our attention, small business owners could easily miss a very important piece of information: One of the biggest threats to the success of a small business is employee theft, and these days it is on the rise.

The statistics are staggering. The U.S. Chamber of Commerce estimates that 75% of employees steal from work in some way and that 30% of corporate bankruptcies are a direct result of employee theft. This means that employee theft may be a bigger concern to small business owners then shoplifters.

So why is this happening?

Many experts in the area of corporate crime immediately point to the credit crisis, the slump in the housing market, and the resulting recession as the main causes behind the rise in employee theft. An increasing number of Americans are losing their jobs or experiencing cuts in wages, benefits, or hours. As their take home pay declines, people have less money available for daily expenses such as food and fuel. The rise in home foreclosures, loan defaults, and bankruptcies is blatant testimony that many are just not keeping up with their financial obligations.

Several small business owners also site a reduction in the number of employees as another contributing factor. As operating budgets get squeezed, small businesses have been forced to cut back on their workforces, and that means fewer watchful eyes. It’s an open door for would-be employee thieves, and small business owners can not afford to ignore it.

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