30 percent of small business failures are directly related to employee theft or fraud according to the U.S. Department of Commerce.
An employee is 15 times more likely to steal than a non-employee according to The National Federation of Independent Business, who also indicate that employee theft accounts for more than vendor fraud and shoplifting combined.
The Association of Certified Fraud Examiners estimate employee fraud cost small businesses (companies with 100 employees or less) $870 billion or 30% of all employee theft of $2.9 trillion dollars in 2009. Typically these uncovered small business frauds were perpetrated over several years with the median loss approximating $200K, 90% relating to cash and/or inventory.
Those are some staggering facts.
Why are a disproportionate number of small businesses so hard hit by employee theft? Many will say that with fewer employees, segregation of duties, endemic to sound internal controls is not viable in smaller organizations with fewer employees. They’d be surprised what can be accomplished with some clear thinking. More typically, in my experience, small businesses rely on the “trust and tenure” fallacy. I’m as trusting as any, that can be a disadvantage sometimes, so I’ve chosen to implement good internal controls to protect my inherent trust, from disappointment.
The majority of losses are attributable to long tenured, middle management employees typically with no prior history. The biggest hindrance to small business owners uncovering theft are:
- Lack of effective internal controls
- Ignoring telltale signs
- Fear of confrontation
Typically frauds are discovered by accident. It’s far easier to prevent fraud and theft — or you could count on “not me” or luck. Is that a risk you are willing to take in a tenuous economy when there’s typically a spike?
If you haven’t considered your internal controls, you should.