VIENNA, Va. (MainStreet) -- Small-business owners have enough to worry about. The last thing they need to deal with is an employee gone rogue. Unfortunately, these things do happen, and not just to large companies such as UBS(UBS), where 31-year-old equities trader Kweku Adoboli made a series of trades in September that cost the investment house roughly $2 billion.
Business worldwide lose 5% of annual revenue to fraud, a study says –and small businesses are particularly at risk.
Small businesses are particularly vulnerable, experts say, because they typically lack anti-fraud controls for even the most common schemes -- check tampering and fraudulent billing.
Today's economy makes matters even worse. Theft or fraud by an employee could hit a small company when it is already struggling to stay afloat -- potentially knocking it out of business altogether.
According to a report last year by the Association of Certified Fraud Examiners, organizations worldwide lose 5% of annual revenue to fraud. Based on the 2009 gross world product, fraud losses totaled $2.9 trillion, with the median loss in an occupational fraud case hitting $160,000 and nearly 25% of fraud cases involving losses of at least $1 million.
BookKeeping Express provides virtual professional bookkeeping services for small businesses, advertising a benefit of being an outsourced service: The company's certified bookkeepers pick up on employee theft and can be helpful in the case of "discovery and recuperation."
CEO Greg Jones answered a few questions for us about how small businesses can protect themselves from rogue employees.
Why are small businesses so vulnerable?
Jones: In some cases it starts with the hiring phase, where the business owner maybe has not in his or her past had to do much hiring and doesn't have a formal process in place to bring people on board. Many people are wearing many hats due to the [company's] size. People are focused on day-to-day chores and nobody's structuring process and procedure, HR policies and things that keep people in line. If you don't have that, what typically happens is everybody is running around doing things the way they feel is the best way to do things, and that may not be the best way.
People will come in with different personalities and different thought processes, and if they're not being led or there is no team environment [in which to] think about the company as a whole, an individual may be a complete 180 degrees from what the business owner and rest of the team is following. It's more HR-related issues than theft and fraud.
What are some signs that might alert a business owner to potential fraud or other damaging issues, such as theft by an employee?
Jones: There are no signs, and that's the problem with most small businesses, where you don't have checks and balances and process and procedure to make sure things are being run accordingly. Any good rogue employee is going to handle their day as normal. If you don't have somebody monitoring the activity, whether it's a fleet of truck drivers or in-house financial bookkeeping -- if you don't have these checks and balances in place, the person is going to be long gone before noticed.
Are there any risk management measures a business can take?
Jones: A business owner should have someone that's accountable for the process and procedures being held accordingly. And then there is a cross-check. If I'm the business owner and I have three different departments, I'm going to be sure I sit down with my department heads once a week. You've got to stay on top of managing the team and if you don't do that -- and a lot of people get lost because they're so busy trying to keep the business afloat -- do have somebody else come in and do it. That's where we come in.
Are there ways in which small-business owners enable employees to take advantage of a company?
Jones: Being absent from the business, giving maybe a little too much information to the troops. I don't mean that in a negative way. It's more management style and tricks of the trade.
If you're not creating a team atmosphere, that's a sure sign that no one has any loyalty, no one will care about the company. Are employees involved in growing the business? Do they feel a part of that? If you just really run your business as an organization where everybody is involved, people are going to be more distressed with doing harm to the organization.
Everybody typically avoids what they don't like to do, and that can get you into trouble. Get out of your comfort zone and get involved in what you don't know.