John Egan

Business fraud can be a real pain in the budget. In a study by the Association of Certified Fraud Examiners, the median loss suffered in workplace fraud cases – crimes carried out by company insiders – was $140,000. More than one-fifth of the cases racked up losses of at least $1 million.

The fraud examiners group says small businesses are particularly vulnerable to workplace fraud, as they typically lack anti-fraud mechanisms that are standard at their larger counterparts.

“During and just after the holidays is when many fraud schemes pick up, as more people feel stretched with greater year-end expenses,” James Gifas, head of financial services provider RBS Citizens Treasury Solutions, said in a news release.

To combat fraud at your business around the holidays or any other time of year, follow these seven recommendations.

1. Take control.

Establish and maintain internal controls designed to prevent and detect fraud, the Association of Certified Fraud Examiners recommends. That can include setting up an anonymous hotline for people inside and outside your company to report fraud. The group says workplace fraud is more likely to be detected through a tip than any other method.

“Adopt a code of ethics for management and employees,” the association says. “Set a tone at the top that the company will not tolerate any unethical behavior.”

2. Institute hiring procedures.

When hiring employees, do thorough background investigations, the fraud examiners group says. Check a potential hire’s educational, credit and employment history, as well as his or her references. Keep in mind, though, that most workplace fraudsters are first-time crooks who have clean employment records.

3. Strengthen your passwords.

Gifas recommends using a mix of letters, numbers and symbols for your Internet passwords to ward off fraud by online crooks. “Hackers have more processing power to crack passwords than ever before, and can relatively quickly test all words in the dictionary to see if the right one comes up,” Gifas said.

4. Safeguard your computer.

“As we all know, a minute away from our desk can sometimes turn into much longer, as meetings pop up and we get stuck taking care of a crisis. … Just as you wouldn’t leave cash lying around on your desk, always lock your computer as well,” Gifas said.

5. Perform surprise audits.

External audits are limited in their ability to unearth fraud, the fraud examiners group says. “Surprise audits are a good way to detect and deter occupational fraud schemes so that funds can’t be manipulated ahead of the audit,” Gifas said.

6. Conduct training.

Fraud awareness training for employees and managers is a vital tool in preventing and detecting fraud, the fraud examiners group says. “At a minimum,” the group says, “staff members should be educated regarding what actions constitute fraud, how fraud harms everyone in the organization and how to report questionable activity.”

7. Keep your eyes peeled.

In about eight of every 10 workplace fraud cases, the fraudster exhibited behavior that raised red flags, according to the study by the fraud examiners group. This included the swindler experiencing financial woes or living beyond his or her means.

About three-fourths of the fraud schemes reviewed by the fraud examiners group were carried out by employees in one of six departments: accounting, operations, sales, upper management, customer service and purchasing.

This article is part of the Drive Your Business Forward series. Check out for more tips and advice on how to succeed as a small business. This series is supported by Mercedes-Benz Sprinter.