Fraud Alert – Business Owners Beware of Employee Scams

Fraud Alert . . .  bad or misinformed hiring decisions can cost business owners a great deal – sometimes it may mean losing their company.

Small-business owners, traditionally known for relying on instinct and good feelings when it comes to hiring, are being forced to take a tougher approach to the process.

That’s because smaller, less sophisticated companies tend to be victimized more frequently by employees committing theft or fraud and suffer greater losses than larger firms, according to a study released by the Association of Certified Fraud Examiners.

It doesn’t matter what kind of business you own – you can be a victim of employee wrongdoing. Steve Gilfand, vice president of a small computer document imaging company in Skokie, Illinois, has his own horror story.

No one thought to check the background of the woman hired as an accounting assistant at Computer Recognition Technologies, Inc., a couple of years ago.  She was on the payroll for six months, but it took only 90 days for her to forge $120,000 worth of company checks and deposit the money in a bank account opened under an alias.  An internal audit revealed the missing funds, but the money was gone.

“We found out that she was on parole for check forgery and substance abuse when her parole officer called because she violated her parole,” said Gilfand.

At the same time she was stealing money from CRT, she was trying to defraud an insurance company on a claim involving personal belongings.  Two fraud investigators set up a sting and arrested her on multiple charges. She was eventually sentenced to serve eight years in jail without parole.

Gilfand’s company is suing the bank that allowed the woman to cash the forged checks.

Closer to home, an attorney I am associated with, hired a receptionist and bookkeeper to fill that role at his collections company.  After several years of solid performance, he decided to promote this employee to manage the entire collection office — after all, she was running it already.  The company grew for another year and became quite profitable, however a confidential internal audit determined that money was being diverted.  An undercover investigation revealed that the woman had scammed the firm for more than $205,000 in less than two years.  She was immediately terminated.

But wait, there’s more . . . the woman filed a wrongful discharge lawsuit against her former employer stating that she was never charged with a crime and therefore, was fired without cause.  The attorney represented himself in the suit and fought successfully, but the point is, if he weren’t able to be his own lawyer, it would have cost him thousands of dollars to fight the lawsuit brought against the person who allegedly stole nearly a quarter of a million dollars from his business.  How rude!

Okay you say — what can I do to protect myself or my employer?  Start with a thorough pre-employment reference report, whether conducted in-house or by a professional third party (you can email me for a referral to one of the best in the country).  For just a few hundred dollars, you will be able to have some peace of mind that your prospective employees are who they say they are and can do the work you want them to do.  Although there is no guarantee, you’ll have taken reasonable steps to assure you won’t be the victim.

Next, I recommend using an extremely detailed application process.  Now, I know you small business owners will freak out about how much TIME this will take, but if you had your choice of investing a little time and money or losing thousands of dollars, which would you pick?

Finally, while I know today’s business gurus say you should work on your business instead of in it, your gut (aka common sense) should tell you to find ways to check on the financial transactions in your company.  Absentee owners are the most likely to get fleeced.