Is a trusted employee stealing from your company?

Posted5/1/2016 1:00 AM

"And this is Char," you say proudly as the tour you're giving that important new customer nears its end. "Charlene, actually. She's our numbers person. Char handles the bookkeeping, the accounting. In fact, she knows more about our finances than I do," you add with a chuckle. "Hasn't missed a day in years. I don't even check her numbers."

What you don't say, because you don't know, is that Char is stealing thousands of dollars from your company.


Or maybe not. Char is a made-up name, but the examples that prompted this column are real, and small businesses can be extremely vulnerable to inside fraud.

According to data from the Austin, Texas - headquartered Association of Certified Fraud Examiners, "The typical organization loses five percent of revenues each year to fraud."

That may seem manageable, but the executive summary of the ACFE's 2016 Report to the Nations, released in April, says the median loss was $150,000. Worse, the money can be difficult to recover. "It takes time and effort to recover money stolen by perpetrators, and many organizations are never fully able to do so," the previous report (2014) said. "Fifty-eight percent of victim organizations had not recovered any of their losses."

Small businesses, defined as those with 100 employees or fewer by Dave Friedman, partner in the Palatine office of BIK & Co., a CPA and advisory firm, are particularly vulnerable in part because they're small.

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According to BIK, nearly one-third of smaller companies suffer fraud losses; the average loss, BIK says, is $155,000.

Friedman, a CPA who also is certified in financial forensics, and as

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both a fraud examiner and internal controls officer, says fraud occurs in many small businesses because "the accounting department is overwhelmed and overworked. There aren't enough people to segregate Charlene's duties or to properly supervise her work."

Char, Friedman explains, "has been there for 20 years and everyone trusts her. But her kid gets sick or her husband loses his job, and Char feels financial pressure."

Employees like Char can rationalize what amounts to stealing, Friedman says, because "She's just borrowing the money and will pay it back, or she did all this work and didn't get a bonus."


Freidman says there are tipoffs that something's wrong. "If your gross and net profit figures have been running at 25 and 15 percent, and suddenly there's a drop-off you can't explain, or if you can't get your financial statements from accounting on the usual schedule, there might be a problem," Friedman says.

A January posting on the Intuit/QuickBooks Small Business Trends & Stats website suggests the following defensive practices:

• Establishment of an anti-fraud hotline, the whistle-blower protection programs mandated by federal legislation (Sarbanes-Oxley Act, passed in 2002).

• Internal review procedures, if they don't already exist.

• Anti-fraud training for all employees, including senior executives.

• Surprise audits.

• External audits of company internal financial controls.

• Follow Jim Kendall on LinkedIn and Twitter. Write him at Listen to Jim's Business Owners' Pod Talk at

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