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How to Prevent Internal Fraud

Internal Fraud

With your business slowly gaining traction and recognition, the work is beginning to pile up. So much work, in fact, that your current employees are getting overwhelmed and overworked.

“Easy solution,” you think to yourself, “It may be time to hire another employee.”

Firstly, congratulations.

Secondly, stop there.

Before continuing, how extensive are your background checks when you hire someone? You may believe that hiring someone is an innocent-enough process, but let’s think about how much trust is truly involved.

You’re letting another person into your circle and giving them access to potentially confidential information. You want to ensure that you are hiring the right person.

Why are we bringing this up?

As mentioned in our last blog, November 17th kicks off International Fraud Awareness Week, a global effort seeking to minimize fraud by promoting anti-fraud awareness. A lot of business owners believe that strangers are the cause of any detriments or data breaches in their business, but that isn’t always the case. Sometimes the threats come internally.

The Association of Certified Fraud Examiners estimates that businesses lose 5% of their annual revenue to employee fraud and abuse. Small businesses are often more likely to be hit by employee fraud schemes, particularly businesses who have fewer than 150 employees. According to the U.S. Chamber of Commerce, 75% of employees have stolen from their employer at least once.

Being proactive and doing your due diligence is your best defense against internal fraud. Here are some tips to prevent it.

Know Your Employees

While every employer hopes to hire honest, hard working employees, having a formal hiring process in place and conducting background checks helps prevent fraud. Background checks are important, especially when it involves a potential employee handling cash, managing payments or bank account information for your business or your clients.

Limit the amount of access you give to employees regarding banking information by permitting a select few have access granted to those accounts. It’s important to trust your employees but it’s not necessary to give every employee access to banking information.



It’s important for businesses to regularly audit areas that involve cash, product returns, inventory or accounting. Non-scheduled audits are useful in catching any potential malpractices before they get out of hand.

The Association of Certified Fraud Examiners offers an anti-fraud protection check-up, which is an easy and effective way to test your company’s fraud health. If you’re unsure of where to start for an audit, this a great tool to see which areas need to be improved upon and corrected.

Ensure you know your numbers regularly as well. Reviewing financial statements on a regular basis, on a monthly basis if time permits, will send off alarm bells if the numbers go awry.


Direct Deposit

Encouraging your employees to receive their payment via direct deposit is not only convenient for them, but it is beneficial for you. Losing a paycheck could leave it in the wrong hands, where that person would have access to banking information and the potential to commit payroll check fraud.

Payroll fraud comprises 8.5% of occupational fraud worldwide and costs businesses an average of $72,000 per payroll fraud case, with small businesses getting hit more often than larger businesses.


Best Practices Training

Within the insidious realm of fraud, it isn’t safe to assume that all employees will behave the same way as you. Establish anti-fraud training for your staff annually. This would be a great way to address any concerns and outline the standards. It’s also a great way of letting employees know that you’re up to date on fraud schemes. Employees can’t feign innocence if you’ve outlined what is acceptable and unacceptable. Cultivate a company that promotes integrity, by adhering to your company’s code of conduct and assuring that your employees know you expect them to adhere to it too.


Shredding Practices

While shredding documents won’t necessarily deter employees from committing fraud, shredding confidential documents and storing documents in a secure, lockable file prevents sensitive information from getting into the wrong hands, be it someone outside the company or someone within.

At A1 DATASHRED, we will provide you with security containers and consoles free of charge, making it easy for you and your staff to safely dispose of confidential business records. Contact us today or give us a call at 1-888-95-SHRED to find out more!

November 21, 2019