Tips for preventing fraud print Print

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All businesses are vulnerable to fraud in one way or another. This guide offers you some tips on how to minimize the possibility of theft and fraud happening in your business.

Most opportunities for fraud can be eliminated through simple systems and procedures that all staff must adhere to. However, many business people believe 'it could never happen to me' and therefore don't turn their minds to effective control. Here are some ideas to control fraud:

Fix it at the source

Don't hire the wrong people. The best policy against fraud is to make sure you hire the right people in the first place. This article Taking on your first employee will help.

Look after your staff

The best prevention is recognition. If staff feel undervalued or not appreciated they may look for 'compensation' in the form of theft and fraud. If staff morale is high this is less likely to happen. The ANZ Biz Hub article How to deal with workplace theft deals with this issue in more depth.

Theft can be contagious

Note that a culture of theft can be contagious. For instance, a North Canterbury bar owner installed a security camera and discovered that 21 out of 23 employees were stealing. It's highly unlikely that this percentage (91%) of the general population is dishonest, so the example shows how a few dishonest employees can spread a 'culture' of dishonesty.

Greatest theft is theft of time and resources

Remember that the greatest theft in business is the theft of time and resources. For example:

  • Time wasting: fix this if possible through time sheets. Especially in businesses that charge by the hour (such as car repairs) this is a good way to lessen the number of hours wasted, or doing personal repair or jobs for friends on company time. Here's the check: Look at your gross profit figure. If this figure is too low, or below the industry benchmark (your accountant should be able to advise) check on the timesheets.
  • Private use of the company vehicle. Making employees complete a logbook is a good way of limiting unauthorised private use. For example, one of the three directors of a trucking company regularly drives different delivery routes himself to check on times and mileage.
  • Private use of cellphones. Give employees a budget for cellphone use or get them to account for the monthly amount if it looks excessive. Often excessive cell phone use is simple laziness on the employee's part; many of the calls could be made via landline.


Prevention through stronger systems

Developing more effective systems can prevent these fraud opportunities:

Stock deliveries

Are you paying for what you're actually getting? Some businesses simply fail to check stock delivered against the delivery docket. This opens opportunities for fraud in both the delivery driver and the employee receiving the goods.

For example, a liquor outlet took a while to discover that as many as three kegs of beer a week during the rugby season were 'diverted' to the local rugby team.


Goods going out

Checking outgoing goods is also important. For example a building and DIY supply outlet did not have effective gate checks on customers leaving the premises. There was ample opportunity for dishonesty. In some cases apparent dishonesty can simply be the result of inefficiency, but the effect on the business amounts to the same thing as theft. For instance, meals and drinks in a restaurant that aren't charged out because the system is inefficient. Mystery shopping can do a great deal to close these loopholes.

Cash handling

Reduce temptation as much as you can. If possible, the owner should do all the cash handling. If this is impractical, try not to make cash handling the monopoly of one employee. It should be a rotating duty. Log-in codes on tills are also a sound idea. For example, in most supermarkets, each employee at the till has their own log-in code and a till drawer of their own. At the end of the shift, the drawer and the till tape are taken to the manager for balancing. Encouraging the use of EFTPOS transactions can also help minimise your cash handling.

Till rung up as zero

In smaller business with just one till, employees might be able to ring up a sale as zero (or, even harder to spot, as lower than the true amount) and pocket the money. Often the money is not taken out immediately - that would be too obvious. Instead the employee might undercharge the till of say $100 over the course of a shift and then take this out during a quiet moment. Of course the till will still balance.

Staff accounts

If staff 'perks' include buying goods at special rates, staff should not be able to control their own accounts. All staff purchases should be checked and marked off by the owner or a manager.

Rotate duties if you're suspicious

If you notice sales slipping, rotate duties to see if the till amounts go up. A surge in sales when a key employee goes on leave can be a sign that fraud has been occurring. For this reason be wary of staff who are reluctant to take holidays. If you have several branches and your suspect turnover at one branch is suspiciously low, try swapping managers.

High living

Another danger sign is staff that appear to live beyond their means (for example, driving a luxury car). The reason might be genuine (an inheritance) or not. Also keep an eye out for staff who gamble (talk frequently about the racecourse, casinos, etc) or who might have a drug habit. These habits are expensive to feed, and you don't want to be supplying the funds! All this doesn't mean you should spy on staff, but staff who steal are often surprisingly poor at concealing extravagant lifestyles.

Monopolies in the business

Be wary of situations where a staff member controls an activity, such as computer systems. If you don't understand what they do, then at least one other person in the business should, otherwise you have effectively handed over control in this area of your business to someone else. For example, an employee in charge of computer systems at a legal practice was able to siphon off several million dollars of trust fund money over the course of a few years. No one in the practice was quite up to speed with what she did, so she was able to conceal her tracks for a long time.



If your gross profit margin is slipping, some spot audits and inventory checks can be useful. These should be part of your internal systems. Comparing your business to others can be illuminating.

For example, if you compare the industry average gross profit percentage against your own and find yours is well under average then take these steps:

  • Check your mark-up percentage. Suppose this is 50% (in line with industry average), but you discover through the Gross Profit ratio (Gross Profit divided by Sales x 100) that the mark-up is only 30%.
  • Make sure your mark-up policy is being properly implemented.
  • If it is, then the problem is likely to be sales not going into the bank, sales not being recorded, or simply theft of stock.


Examples of simple frauds

Cashing personal cheques

An employee cashes a cheque through the till for $100 and then undercharges this same amount over their shift, so that they get the money for free and the till still balances.

Employee 'goes into business'

Sometimes an employee uses your business to do business for themselves. For example a barman introduces a few of his own whisky bottles into the bar stock. The money from any drinks sold from these bottles goes straight into the barman's pocket. Could something like this happen at your business?

Buyer commissions

If you employ buyers, be aware that they could be tempted by gifts, secret commissions or kickbacks. It's a good idea to regularly put your supplies up for tender. Have strict rules about accepting gifts (perhaps set a maximum value). For example, a few bottles of wine at Christmas are acceptable, anything more lavish should be returned.


A variation is for the employee to charge friends less than the true amount. Two ways to lower this risk are regular mystery shopping (to ensure that correct till amounts are rung up) and bar coding as many of your goods as possible, so that the amounts are entered automatically through the bar code reader.

Returns and refunds

Any goods returned or refunds made should be countersigned by you or a manager. The employee should not have authority to do this alone. And make sure the goods are yours!


Customer fraud

Credit card fraud

It's the merchant that usually bears the risk for credit card fraud, so follow some basic procedures.

  • Check with the issuing bank for any tips on preventing credit card fraud: banks usually have a list of do's and don'ts.
  • Make sure employees check the signature! Take a note of how many businesses really check your signature when you use your credit card. Many businesses fail even this simple check.
  • Encourage customers to enter their PIN number as an alternative to signing the card. It's unlikely that a person with a stolen card will also know the PIN number.
  • If in any doubt, ask for another identity document such as driver's licence or passport.
  • Ask for a telephone number and then get an employee to check in the phone book that the person's name matches the telephone number supplied.
  • Be wary if the card is presented loose, and is not taken out of a wallet.
  • Check with the issuing bank if the amount is over the agreed amount for a credit card transaction.
  • Exercise common-sense and don't destroy goodwill. In the case of small transactions, or frequent customers, don't become too officious or you will jeopardise goodwill. For example, a new employee being overzealous in checking out a frequent customer.
  • In mail order or Internet transactions, get a full residential address, fax, telephone and email details. If necessary phone the telephone number as a check.
  • Never send goods to a PO Box number. Be wary of 'unusual' orders from overseas countries. Businesses that sell high value equipment such as computers or cameras are particularly vulnerable to fraud attempts. Ask yourself why the customer in Nigeria or the Ukraine (Eastern Europe is a high-risk area for fraud) is interested in buying from you. Is it reasonable that they should do so? Take extra care in checking out credit cards from Third World countries. If necessary ask other agencies to check on the identity of the customer.
  • Be wary of email orders that come through a 'free' email account (like Hotmail). Have good proof of the person's real identity before you ship any goods. Get the person to fax the order to you with a signature and full contact details and a photocopy of the credit card. The email name and the delivery name should be the same.
  • Another danger sign is the customer wanting faster delivery at a higher price (they're not going to pay anyway).


Minimising opportunities

Here are some simple guidelines to minimise fraud:

  • Get all cheques pre-printed as 'Not transferable, account payee only.'
  • Money coming in should be handled by two people.
  • Two people should sign business cheques.
  • Check on payments made out to a supplier unknown to you. Also check on sudden increases in supplier payments.
  • Use spot audits and inventories.
  • Benchmarking: use employee holidays to check takings.
  • Be suspicious of an employee reluctant to take holidays and an employee who has monopolised a task.

If your ratio analysis shows that shrinkage is a problem in your business get advice from a security firm as to whether security cameras or other on-going monitoring measures will help.

Remember to abide by due process if you install hidden cameras.

Obviously you can't build a good team spirit if you are perpetually anxious or suspicious about staff or customer theft. But minimising fraud often means just sound, sensible business practice, setting a good example yourself and keeping staff occupied with exciting and worthwhile goals backed by strong core business values. Finally, remember that complacency is your main enemy and the fraudster's greatest ally.



Helpful ANZ Biz Hub articles include:

Further information:

To talk to an ANZ Business Specialist:
Call 0800 269 249
Visit your nearest ANZ branch

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