How can I avoid fraud in my business?

Most people who commit fraud against their employer are not career criminals. In my experience it can be trusted team members, under external or internal pressurized circumstances that can initiate fraud in your business. Now, lets not get paranoid, but fraud is something that could affect any business. 

The vast majority are trusted staff who have no criminal history and don't even consider themselves lawbreakers. But there are some things that all fraudsters have in common: Pressure, Opportunity and Rationalisation. In becoming fraud-proofed think about how this could apply at your business:

Pressure comes from a 'non-disclosed' financial problem that can't be shared or solved in a legitimate way by one of your staff. It might a gambling addiction, desire to impress friends or problems with a loan that must be repaid urgently. Non-disclosable problems involve some sort of embarrassment or shame. They threaten the fraudster's status as a person who is trusted by others. In almost every fraud case, their financial problem relates to gaining or maintaining status.

Do you have your 'sources' for information about staff problems? Ideally, regular staff reviews will give you an understanding of the 'whole person' and their needs. Drug, alcohol and financial counselling services are widely available, but you need to be bold to suggest them - it's difficult for some people.

Opportunity arises when the fraudster sees a way to use their position of trust to solve their financial problems, knowing they are unlikely to be caught. To mitigate against this, think of all the opportunities that arise with money handling at your business: balancing the cash against the till readout, counting cash, making up floats, 'correcting' over-rings and errors. Lax stock-control with liquor or expensive food items gives plenty of opportunity to trade these items for cash. Most hospitality businesses offer wonderful opportunities for fraudsters, with little monitoring of warning signs and sloppy cash control systems.

Tight checks and balances with cash and stock handling will eliminate most opportunities, with unexpected spot-checks to keep people on their toes. Plus a clear division of labour between those who count and those who check the figures - whether it's cash, wine or stock. Would an external stocktake service really be so expensive if it meant the job was done properly? Is there a good reason why the cost percentages in your Recipe Software are lower than the monthly food cost percentage? Or not.

Rationalisation is the third part of the triangle. Most fraudsters are typically first-time offenders with no criminal record. They see themselves as ordinary, honest people who are caught in a bad situation. This lets them justify the crime to themselves in a way that makes it acceptable or justifiable. They may say they were 'just borrowing it', or felt they were entitled to it, or had to look after their family or felt they were being underpaid and therefore deserved it. Sometimes they feel the employer is dishonest and should be 'sharing the spoils'.

Your Employee Code of Conduct should also talk clearly about the value of integrity and honest dealings in the business, so rationalisation is harder: 'but nobody said I couldn't borrow!'. This is not about staff needing a sainthood as a condition of employment, but there are too many times that trust is misplaced through naivete or laziness. Ensure you communicate with staff how you do share the spoils, and ensure you have a (modest if need be) performance reward scheme, to show that you reward hard work.