Bill Salisbury of the St. Paul Pioneer Press reported cases of fraud, theft, and embezzlement by public employees has risen in the last three years. According to Minnesota State Auditor, Rebecca Otto, the increase is in part due to the tough economic climate, staff reductions and fewer people exercising internal controls, as well good old human temptation. People are also more likely to rationalize doing something they normally would not do.
Otto stated, "People can see weaknesses in control systems, and may be more tempted to exploit them. They are more likely to think that nobody will notice." My law partner, Tiffany Schmidt, recently blogged on the importance of conducting an investigation in the event an employer suspects fraud or theft. Without a thorough investigation it is extremely difficult to substantiate disciplinary decisions.
A business audit and some simple changes in business practices can go a long way to avoid employee temptation, or at least make it easier to uncover fraud and theft. Employers should first conduct a vulnerability assessment on their business practices and then consider:
- Developing an anonymous reporting system which encourages employees to come forward and report fraud and theft.
- Developing a business ethics policy and include it in your employee handbook.
- Changing internal practices for money handling to insure one person does not have sole responsibility for handling finances.
- Conducting background checks on prospective employees.
- Working with your business banker and adding controls for cash, checks, and supplies.
- Changing inventory tracking practices.
- Maintaining good records on company equipment/inventory to prevent loss or misplacement.
- Reviewing phone, credit card, and postage expenditures.
- Spot checking workplace garbage cans and outside trash containers to prevent “ditching” things and recovering them after work hours.
- Changing the locks and limiting access to workplace premises.
- Password protecting sensitive business records on computers.
Good business practices can be very effective in removing opportunity and temptation, preventing employee fraud and theft in your workplace.