If you think because you’re a small business owner you can keep your eye on employees who handle your money, think again. According to a study by the Association of Certified Fraud Examiners (ACFE), nothing could be further from the truth. Check out these findings from a 2008 study:
- The median loss in this study was $175,000.
- The typical period between the time of the first act of fraud and the time someone was caught was two years. In other words, most of the instances of theft went undetected for long periods.
- Most of the thefts were committed by first-time offenders – people who appeared squeaky-clean prior to getting caught. Only 7% of fraud perpetrators in the study had prior convictions, and only 12% had been previously terminated by an employer for fraud-related conduct.
- Most of the perpetrators were caught as a result of tips from employees or others, rather than by audits.
- Most of the victims were small businesses – who thought their size was an advantage for keeping track of cash and the people who handle it.
In markets like the ones we’re experiencing today, larceny lurches upwards. According to ACFE, the reason for this is two-fold.
- Employees can become desperate. In times like these, if one spouse gets laid off and a household of 4 is dependent on one income it can trigger behaviors a worker would never consider otherwise.
- The other is with layoffs. With the number of layoffs we’re currently experiencing, controls that might otherwise have been in place fall through the cracks.
The figure of $175,000 is probably even larger when you consider the loss of the interest you would have gained had that money been in the bank. The loss of productivity carries a high loss. Remember the worker was stealing, not being productive. In addition this worker is probably not very communicative with other employees. Then there’s the cost of possible litigation and the whole hiring process to replace that worker.
Don’t be lulled into thinking that it’s only the employees who work directly with your money that you have to watch.
There’s the case of a worker whom others described as “a tireless, even obsessive, worker” However, this worker died suddenly of a heart attack and shortly after his death a routine audit turned up a contract he had negotiated with a recruiting firm that led a multi-million dollar billing error. While the company found no wrong doing by the worker, his very sordid past began to reveal itself. Plus I can guarantee you he was up to something. He had served a jail sentence after pleading guilty to five counts of felony, one count of forgery and four counts of grand theft. He had failed to pay taxes for 11 years. Further, he had faked his Ph.D. from Stanford University.
Then there’s the case of a young female worker who worked in the human resources department. (Really! Is no place scared?). I used to visit the department on occasion and this unmarried, $8.00 an hour receptionist somehow found money to pay for a college education out of her own pocket. In addition she had two children to support, maintain a vehicle and housing. I often wondered how she did it. Well it seems she was forging Partial Unemployment Claims. She worked in a small hotel and when the housekeepers didn’t have enough hours in a week, they could file for partial unemployment. She was claiming unemployment compensation she didn’t earn or deserve. When she was caught the hotel did press charges and now this young woman has a criminal record.
Maybe not all of these cases were the results of hiring fast and firing slow, but it makes the point that organizations need to take the time to hire right right from the start. At the very least your hiring system should include background checks, drug testing and reference checking. Simply checking the references a candidate gives you is not enough. A candidate is not going to be dumb enough to give you the name of someone who would give them a poor reference.
You must dig deeper. Today you have the opportunity to take advantage of the many social networking sites available. In addition, call previous employers and dial around within the company. For example if the candidate gave you an extension number “misdial” by a digit. Someone may be willing to talk their head off about the candidate you’re thinking of hiring. When you’re networking, listen to see if the name of your candidate gets bandied around.
The point is that just because you’re a small business doesn’t mean it’s any easier to protect your assets. Because you THINK you know everyone who works for you doesn’t mean you REALLY know them. Lessening larceny can be accomplished by taking the time to hire slow and when you’ve been violated don’t waste time – fire fast!
What questions/comments do you have about hire slow – fire fast?