In my last blog I mentioned how an old client of mine ended up losing his business because of a fraud scheme that ran into the six-figures. He was shocked because he thought that he was running a great business with people whom he could trust. And the more I got to know him, the more shocked I became as well because, frankly, he was such a good guy; who would steal from Bill? (Name changed.)
His own CFO, that’s who.
Looking back, I realize that, like many small business owners, I was quite naïve. I thought that because Bill was smart, ethical, and fair, he would be treated the same by his employees. I was wrong, although it still surprises me. After all, the very nature of small business is that we tend to work with people we like and trust, and that’s one of the things many small business people like best about the gig—that family feeling.
But it turns out that it is that exact same thing that makes small businesses so susceptible to fraud, especially expense accounting fraud. If you think about it, the only way employees can steal from you is if you trust them. It is that trust that creates the opportunity.
So what do you do? How do you communicate with your team in a way that respects them, does not tarnish the relationship, but also reflects the seriousness of the issue?
The first thing to remember is that you are not there to be your employees’ friend. You are the boss. Your job is not to get them to like you (though that is good), but rather, to run an efficient, profitable business. You do that using the proverbial carrot and stick.
The carrots in work are critical to making yours a place where people want to work. They include:
- Good pay and benefits
- Room for advancement
- A great culture
- Trust and respect
But it is the stick that makes them toe the line. The stick means that your people not only respect you, but that they also know that there are consequences for their actions and that employment and promotion are not guaranteed.
Does that mean I am suggesting that you be a jerk? Of course not, but it does mean that they need to know that you have a zero tolerance policy when it comes to fraud. Zero. Tolerance.
As such, maybe the most important thing you can do if you ever do encounter fraud is to Make a Big Deal out of it. Make an example of the perpetrator. Fire them, and prosecute if necessary. This sends an important signal to the rest of the troops and will act as the best sort of fraud prevention there is—deterrence.
Beyond that, the key is open, honest, and consistent communication: Have policies regarding expense reporting fraud (indeed, all fraud) and communicate those policies clearly to your staff in memos, meetings, and evaluations. Tell potential employees that you conduct background checks. This will not only discourage the deceitful, but it will also serve as warning that you expect honesty.
While there is no need to be heavy handed or to make empty threats, you do need to be clear, direct, and, as they say, as serious as a heart attack, because fraud is serious. Fraud put Bill out of business and it can do the same to you. But it won’t if you lead, communicate, and back it up.