Avoiding Fraud: A Lesson for Small Business Owners with Employees

April 2024

Small businesses are incredibly susceptible to fraud by employees due to a lack of separation of duties.

When you have a limited number of employees and a large number of tasks, it usually means employees are helping out with multiple functions within the business.

In this story, a business owner discusses how his administrative assistant stole thousands from him over the course of a couple of years.

One of her jobs was running payroll.

She would run a payroll report, give it to the owner to approve hours, then increase her hours before actually finalizing it.

The owner never checked the money withdrawn from the bank to see if it matched the report he was approving.

Fortunately, there are ways to mitigate this.

Until your business is in the millions, usually payroll is a function you can effectively outsource to a third party. Most issue reports with hour totals and withdrawal numbers you can easily match to bank pulls.

Additionally, a third party is not an employee, so they will not be able to manipulate the amount they are being paid by adjusting hours in the payroll system.

If your company is large enough that you do need a full-time internal personnel running it, you need to make sure controls are set-up in place to keep data from being manipulated after approval. This means using a system that doesn’t allow for changes after approvals are made.

There also needs to be a periodic review process to ensure that what’s been approved is what’s been ran. Yes it’s more work, but there's been fraud to the tune of millions on the payables side, so it’s a part of running a business.

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