No business wants to experience dishonest or fraudulent acts in the workplace; however, it’s important for your business to be prepared. Employee dishonesty is a serious risk for many businesses.
A study found 26% of small and medium enterprises found themselves the victim of at least one occurrence of workplace fraud in 2012, collectively losing approximately $3.2 billion at last count in 2010.
What is employee dishonesty?
Employee dishonesty refers to any fraudulent or dishonest acts by employees and can include:
- Misappropriation of cash (cash theft, revenue skimming, and fraudulent cheques, payroll, expenses, and invoices.)
- Misappropriation of inventory (stealing inventory, unauthorized use, and fraudulent sales and write-offs.)
- Misappropriation of other assets (misuse and unauthorized use of equipment, computer systems, and company cars.)
- Corruption (self-dealing transactions, conflicts of interest, bribery, and bid-rigging.)
- Financial fraud (deliberate misstatement or falsification of financial or non-financial statements.)
Tips to Prevent Employee Dishonesty:
Considering the potential severity and cost of employee dishonesty, it’s important all types of businesses have multiple measures in place to prevent and detect cases of fraud. Here are some tips for doing just that:
- Engage in frequent financial reviews and reconciliations by both internal and external auditors.
- Establish clear accounting and financial procedures.
- Divide accounting duties such as payables, receivables, and bank reconciliations between different staff members.
- Have physical safeguards and systems to protect cash, equipment, and other valuable assets.
- Use pre-employment screening when hiring new staff members.
- Develop fraud and ethics training and a code of conduct for both management and other employees.
- Split responsibilities among staff to ensure no one individual has unreasonable authority.
How can you protect your business?
Employee dishonesty can still occur even with the most stringent prevention methods. In addition to prevention, taking steps to detect fraudulent activity and having appropriate insurance coverage can ensure your business is protected.
Businesses can try to identify instances where employee dishonesty has occurred by doing the following:
- Have a procedure for employees to report suspected dishonesty
- Periodically conduct surprise audits
- Test employee knowledge of fraud and fraud awareness
- Consider monitoring business activities using data and statistical analysis in combination with an external auditor.
In the event an employee commits a dishonest act, either alone or colluding with others (excluding business partners), employee dishonesty insurance coverage will protect your business. There are two types of coverage available:
- A Commercial Blanket Bond insures up to a maximum limit per loss regardless of how many persons are involved.
- A Blanket Position Bond insures up to a maximum limit per employee.
Employee dishonesty coverage can often also be extended to include frauds perpetrated by volunteers or directors, so all businesses can ensure they are properly covered.
Protecting your business from employee dishonesty includes making sure you have the right business insurance coverage in place. To discuss your current coverage, or to get help finding the coverage for you, call your BrokerLink Broker today.