Deter employee crime and dishonesty with these 17 steps

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How business owners can minimize the chances of employee crime

1.  Deterring employee crime starts with the hiring process: background checks and more.
2.  Other ways to deter crime: broadcast countermeasures, job rotations and conduct surprise audits
3.  Follow these financial checks and balances: check signing, cash and credit card handling, strict documentation.


Employee crime: All too often, we’re so busy protecting our businesses from outside perpetrators that we fail to think about that person we hired last month or six years ago. To many, acts of fraud and crime are usually characterized by external actors – masked thieves, anonymous cyber criminals and other third parties with no connection to an organization besides their desire to victimize it.

But malicious acts can just as easily be conducted by internal staff and employees. After all, they’re intimately familiar with their organization’s procedures, security measures and sensitive information. While very few employees actually resort to criminal acts, taking appropriate countermeasures against employee dishonesty is just as important as measures taken against external thieves.

For this reason, we’re sharing 17 steps that you should consider to protect your business from employee crime.

Related: How insurance fraud is becoming more sophisticated

Start with the hiring process

One of the first ways of preventing employee dishonesty is hiring quality candidates. Depending on the position, we recommend that before hiring you check as many of the applicable resources and references as possible.

Identify high-risk positions

Some positions inherently have a greater likelihood of experiencing employee fraud, embezzlement or dishonesty. These will require greater protections. Make sure to identify these positions in advance of hiring and ensure that all job descriptions require appropriate pre-employment checks.

Past employment verification

Most employers will only verify position and dates of employment, but tone of voice can also indicate what they think of the applicant. Remember to ask whether the applicant is eligible for rehire.

Reference checks

If desired, personal or other professional references, or letters of recommendation may provide a more complete picture of the candidate’s personality and character.

Education and certification verification

If an applicant claims to have a license or other certification, call the issuing organization to verify it. Most organizations will tell you if any disciplinary action has been taken against a particular member.

Related: Are you at risk for small business work comp fraud?

Financial background check

If the position requires this step, it is best practice to either make it a requirement of the application or to get the candidate’s consent before proceeding. Obtain a signed authorization and release from a potential candidate that’s included in your employment application.

Background checks

Conducting a background check is a generally accepted best practice for most positions, and is one of the most important employee crime prevention tools employers can use.

Criminal conviction checks

This check is crucial for management, financial positions or jobs that require the employee to access sensitive information or documents, money or other valuable property. If a check is being conducted, or if a candidate has lived in other areas previously, checking for any court records associated with the applicant may also be wise.

A bad hire always costs an organization in the long run, which is why it is ill-advised to expedite the hiring process by skipping over valuable screening steps. Requiring the right pre-hiring measures helps ensure the selection of quality, trustworthy applicants, minimizing the risk of employee crime.

Related: Do you need a workplace substance abuse policy? [Infographic]

Follow-up with internal controls

Once an applicant has been hired, it is up to the internal controls of the organization to reduce the risk of experiencing employee dishonesty or fraud. Consider the following controls and determine which are most suitable for your organization to kick-start your employee dishonesty prevention program or to augment a program that is already in place.

Broadcast countermeasures

An employee is less likely to commit criminal acts if they know that there are procedures and monitoring systems in place to detect them. Whatever controls you decide to implement, make sure you inform your employees of their existence.

Clarify consequences

Every organization should educate its members about the consequences of fraud and crime. Training can either be accomplished during new-hire orientation or through memorandums, policies or ongoing learning programs. Education efforts should be positive and non-accusatory. Emphasize the fact that illegal conduct in any form eventually costs everyone in the organization in the long run through lost profits, adverse publicity, and decreased morale and productivity.

Conduct surprise audits

Developing audits that focus on high-risk areas is often effective in both detecting and deterring fraud. Some suggested areas for audits include expense reports, payroll, purchasing, sales, accounts receivable, cash, and suspense accounts.

Related: How you can prevent business fraud at your company

Conduct inventories

To prevent theft, reconcile sales to inventory on a regular basis (quarterly or at least annually), and conduct surprise inventories from time-to-time. Have procedures in place to follow-up on any discrepancies that fall outside of acceptable parameters.

Mandatory vacation and job rotation

Many internal frauds are discovered when the perpetrator is away on vacation, out due to sickness, or on another unexpected absence. Enforcing mandatory vacations for certain positions, especially those that deal with finance and accounting, can aid in the prevention of some frauds.

Suspicious behavior

Thieves commonly use the proceeds of their crimes for lifestyle improvements such as expensive cars, vacations, clothing, new or remodeled homes, recreational property, and outside investments. Leaders and staff should be educated to be aware of these signs and have a process in place for what to do if they have suspicions.

Confidential reporting

Employees that have a way to provide information anonymously and without fear of recrimination for good-faith reporting, rather than in-person to their immediate superior, are far more likely to come forward if they have suspicions.

Encourage open-door policies

Many internal crimes are committed by employees that are dissatisfied or believe they have been wronged. When employees feel comfortable enough to speak freely to their managers, it becomes easier for leadership to detect and alleviate pressures their workers are facing before they can become acute enough to prompt criminal activity as a response.

Employee support and assistance programs

Employees that have access to resources that help them through common life problems are less likely to engage in criminal activities against their organization. Support can include assistance with substance addiction, excessive gambling, financial difficulties, family and relationship problems or mental health concerns. This tactic has the added benefit of contributing to a positive work environment by helping employees become healthier, happier and more productive.

Financial checks and balances

Implement these or other appropriate measures for your organization’s financial procedures to ensure a robust system of checks and balances:

  • Don’t allow the same person who processes checks also manage accounts receivable records.
  • Limit the number of check signatories to a manager and one or two highly trusted staff members.
  • Keep blank checks under lock and key.
  • Have monthly bank statements sent directly to a trusted manager to review for any errors or improperly executed checks.
  • Assign ordering and payment responsibilities to different employees.
  • Allow only one or two trusted employees to disburse petty cash and require a receipt and signed voucher for all disbursements.
  • Require all credit or gas cards be signed out, and all expenses be authorized by a purchase order.
  • Require strict documentation for all reimbursable expenses incurred by employees. Subject every expense account voucher to a pre-audit review procedure before payment.
  • For cash handling, have two or more people count together and sign verification slips. Store cash in sealed, tamper-proof bags until it can be deposited, and if necessary, utilize a locked drop safe for deposits. 

The proper application of controls can drastically reduce the risk of internal fraud by eliminating the temptation, incentive, and opportunity for employees to commit crimes. While every organization is unique, the need for fraud prevention and a thorough hiring process is universal.

This article originally posted on Arrowhead’s Tribal blog. It has been updated and modified to better fit the needs of Arrowhead producers and their clients.