Workplace fraud affects millions of businesses every year. The ACFE (Association of Certified Fraud Examiners) estimates that the average business loses five per cent of its revenue to internal fraud. While five per cent can be a huge amount of money for a large business, it’s the smaller ones that are more vulnerable and, unfortunately, more likely to experience workplace fraud.
In its 2012 Global Fraud Study, the ACFE found that small organizations (those with fewer than 100 employees) were the most common victims of fraud and suffered disproportionately high median losses ($147,000). One of the reasons the ACFE cited for the increased levels of internal fraud is that smaller organizations tend to have fewer anti-fraud controls in place than larger organizations.
Know Your Risk
“A lot of fraud prevention is doing your homework and doing your due diligence, but fraud is always a risk,” says Joan Ginsberg, SPHR, who has been a police officer, attorney and law professor, and who is now a Florida-based HR consultant to small business.
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Trust and Betrayal
It may also be possible that there tends to be a higher level of trust between employers and workers in smaller business. Employees aren’t just numbers, but are key members of a small team, and employers may be more likely to know, like and trust them.
The sad truth, though, is that it’s often the most trusted members of a company who perpetrate the frauds. And even if you have your internal checks and balances, “the truth of the matter is that you could still have the best person in the world and they turn on you at times, because their circumstances change and life changes around them,” says Ginsberg. “You do the best you can and you try not to forget that those trusted employees are your biggest risk factor and you’ve got to keep your eyes open.”
Caring Breeds Loyalty
At the same time, there are some positive things you can do to reduce the risk of fraud in small organizations, says Ginsberg. They include getting to know your employees and caring about them, their families and their welfare.
“Know who they are, what they are doing,” she says. “Know when they are having problems and don’t dismiss them. Divorced and struggling? That might be the time you keep your eyes open a little bit wider.”
Ginsberg stresses the importance of understanding that people’s personal lives affect their work, and vice versa. “There’s no such thing as separation of work and life. Their life is going to come into your business. Your business is going to come into their life,” she says. “As an employer and manager, you have to be aware of that.”
Life Meets Work
Rather than discouraging employees from bringing personal problems to work, Ginsberg suggests discussing problems with them and doing whatever is reasonable to help loyal employees with difficult personal situations, “… so that hopefully that loyalty remains and doesn’t turn into ‘They’ll never miss it if I take it because I need it more than they do’,” she says.
It all comes down to caring about employees. “You want them to be your brand ambassadors, and they will be as long as you treat them like people you respect and care about,” she says. “You have to be mindful that there’s a whole person there and that you care about the whole person, not just about what they do.”