Mom & Pop(’s) Shop

Mom and Pop businesses are great for a number of reasons: they bolster the local economy, hire employees from the community and often add a personable quality to services oft overlooked by larger corporations. These small family organizations, typically with long-term employees that have access to the cash ledger, also present unique vulnerabilities and challenges to fraud prevention. Why haven’t you heard more about family business fraud? It’s not prevalent in the news because of the sector’s penchant for privacy, but of course fraud happens everywhere. Yes, even at the quaint, family-owned bank in your small hometown.

In small offices where one employee may have control over company cash and assets, it’s vital to educate yourself and your employees (no matter how few there may be) on fraud prevention best practices. Here are some helpful tips for better protecting your family business and employees from fraud.

Educate Yourself and Employees

Train family members and employees on patterns in behavior typically displayed by persons committing fraud. The challenge of educating oneself on these characteristics is that they often mirror the habits of outstanding employees. Take embezzlement for example: two telltale signs of an embezzler are that they tend to work excessive overtime, routinely arriving before anyone else and leaving after all their coworkers have cleared out. Another trait of someone pocketing money from the company: a colleague taking little to no vacation. Of course, like previously stated, these traits also fit some outstandingly dedicated employees so treat these suggestions as potential red flags rather than proof of despicable dealings.

Required vacation and periodic unannounced job rotations can both serve as strong deterrents to these gaps where fraud can occur.

Create a Periodic Risk Assessment Check

Create a broader anti-fraud culture by conducting periodic risk assessment checks of the operating environment, including financial controls. Areas like payroll and accounts payable are the areas most susceptible to fraud, so examine these with data analytics that will alert you to any suspicious activity or patterns. Examples of deceit to look out for in these areas include invoices sent to a single vendor split up into smaller amounts to avoid notice or numerous checks written just under the threshold amount that would require managerial involvement and arouse suspicion.

A notable trait of family-owned businesses is long-term employees and while a loyal employee is an invaluable asset to any company, over time, they can have too much control and access that, if abused, could bring costly damages. Checks and balances, no matter how small the office, will better fortify you and your employees against harmful activity.

Keep an Eye on the Horizon

In the digital age, the family business often outperforms bigger corporations by providing tailored services with a personal look and feel. A great way to buffer the familial office against fraud and other damaging acts committed by employees is to constantly reevaluate your business model. Examine what services you are providing, who will be providing them and the compensation and benefits provided for employees to stay ahead of the game and look for weak spots conducive to potentially fraudulent activities.

Don’t Go It Alone

In a small family-owned business where few people wear many hats, you likely don’t have the time or resources to thoroughly vet – not to mention monitor – your employees, vendors, etc. Consider partnering with a leader in the screening industry to help keep you, your business, and your employees safe from fraud. Those resources and expertise are already in place, so you can keep doing what you do best – running your business.