A major part of the American Dream is building and owning a successful business. Every year millions of dollars, hours of sweat equity and unlimited hope are poured into starting and running them. Also, every year about 20% of them close because of employee theft – that is 1 in 5.
That statistic seems unbelievable, but some experts think it may be higher. When you look at the numbers, it makes sense. Fraud negatively affects smaller companies more than larger ones because they are unable to absorb the loss. Employee productivity is lower than it should be; cash flow can be uneven; cash reserves are less; receivables are slower, and customer default is higher.
The Association of Certified Fraud Examiners estimates the average small business loses approximately 5% of revenue each year to employee fraud. Fraud includes theft of products, time, money, inventory, raw materials, equipment, supplies and other items. 5% in a small business can mean the difference between a profit or a loss.
So, employee theft can be the difference between staying open or closing the doors. Even if you are able to stay open, it also affects your ability to afford other things. You may not be able to “ pay yourself a decent salary, make capital improvements, start a new product line, buy new equipment, hire more employees, or grow and expand.
Given its potential for harm, why aren’t more owners concerned about it? Why aren’t they taking steps to fight it?
Most think it will never happen to them, not understanding that it probably has already happened, is currently happening and will happen in the future. Depending on the study 75% – 85% of workers admit that when the circumstances are “right” they have, are, or will steal. The right circumstances are a combination of motive, means and opportunity.
Motives ” Motives are the explanation’s employees use to excuse their dishonest behavior. These self-deceptions allow them to feel justified in stealing time, money and property from your company. How they feel about you has nothing to do with their honesty ” they will take from employers whom they love, like, hate or fear “ so long as they believe their reasons are valid.
Means – Motive is not enough for fraud; employees also need to have the means. They must have the knowledge and ability to manipulate the system. A bookkeeper can embezzle money because she has access to the books. Stock goes out the back when the foreman creates and uses an inventory method only he understands.
Opportunity ” An employee can be willing to steal and know how to do it, but the opportunity must be available. It is almost impossible for employees to steal if there is oversight and follow through. Most will not try, and those who do are caught before they do any significant damage.
Theft, embezzlement, and fraud are everywhere. Like it or not, it is human nature “ remember the 75% – 85% who admitted to past, present and future dishonesty when given a chance. You can take away their motives, means, and opportunities with well-defined tracking systems, checks, balances, policies, and procedures. Do not let them determine the success or failure of your company
At Cogent Analytics, we never stop looking for ways to improve your business and neither should you. So, check out some of our other posts for helpful business information: