Prevention of theft and frauds for business people
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Theft and Fraud in the Workplace

Small and mid-sized businesses (PME) are occasionally more vulnerable to fraud because they frequently have fewer control mechanisms!

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Fraud is divided into three major categories:

  • Embezzlement
  • Corruption
  • Fraudulent documents

This section of the guide gives you 10 basic rules from the Chambre des notaires du Québec.
(Professional order of notaries in Quebec)

Rules for prevention of theft and fraud within the business:

1. Have a written contract
2. Select good employees
3. Establish a zero tolerance policy
4. Keep an open eye
5. Practice good accounting
6. Manage the merchandise and equipment
7. Use security systems
8. Control access points
9. Manage data access
10. Manage telephone lines

Have a written contract

Theft and fraud between associates exists more often than we think. You have one or more partners? Put the terms of your agreement in writing. Here is a list of points to include in your agreement.

PARTNERSHIP AGREEMENT

  1. Identification: name and address of the business (complete address, telephone, fax numbers and e-mail address, Web site); names and addresses of the partners.
  2. Object: description of the type of business and the work, products or services offered; with details in an annex if necessary.
  3. Term: date the agreement enters into effect and expires.
  4. Obligations: titles and responsibilities of each partner towards the company, work, products or services.
  5. Representatives: names of individuals in charge of projects and other agents (persons authorized to replace the partners).
  6. Compensation: salaries, dividends, reimbursable expenses, conditions, manner of invoicing, etc.
  7. Insurances: responsibility insurance, performance insurance, life insurance, etc.
  8. Confidentiality: list of what is confidential (ex.: business plan, client list) and duration of this confidentiality clause (ex.: until 3 years after the end of the agreement).
  9. Copyrights and intellectual property: list of copyrights belonging individually to the partners (ex.: products developed before the agreement) or to the business.
  10. Modifications and restrictions: limits to the agreement; generally impossible to modify without written authorization by the parties.
  11. Termination: reasons allowing for termination of the agreement (sale, serious illness, illegal act by one of the associates, etc.) and conditions (liquidation or division of the shares, debt, etc.).
  12. Financing: sharing of the investment, profits and losses.
  13. Signatures: identification of the parties and witnesses in block letters, date, location and signatures.

Read your agreement in its entirety before signing, including the fine print! Take the time to fully understand all clauses. Verify the references of your partners (clients, suppliers, etc.). Need help? Consult a notary who specializes in corporate law. He will help you to draw up your agreement.

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Select good employees

According to a study by Samson Bélair Deloitte & Touche, one employee in three steals from his employer. Whether it is a theft of cash, merchandise, equipment, materials, services, long distance phone calls, time or information, it translates into a loss for the business. Here then are a few hiring tips:

  • Invest the necessary time to examine candidates' files.
  • Seek trustworthy and honest individuals.
  • Pay particular attention to individuals who will handle cash, negotiate with your suppliers or manage your merchandise.
  • Choose motivated individuals who will integrate quickly. They will have your best interests at heart.
  • Establish realistic objectives (job descriptions, working hours). Be sure that they are agreeable to the recruited candidates.
  • Offer a fair remuneration.

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Establish a zero tolerance policy

Establish clear rules for conduct and specify the sanctions.

Ensure that your employees understand them well. Use a team meeting or training sessions to announce them.

Establish good communication channels. Invite your employees to advise you of any suspicions. Assure them that all information will be handled confidentially.

Listen to your employees. Resolve all conflicts promptly.

Inform your employees that you will conduct random checks without advance notice. Choose sectors such as the accounting department, purchasing, sales, shipping and management of supplies.

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Keep an eye open

By keeping an open eye, you will quickly know where to intervene. Choose sector control points or strategic moments: reception, delivery, arrival and departure of employees, etc. Put the following suggestions into practice:

Payroll preparation - Have the preparation and distribution of payroll done by two employees, belonging to different work teams.

Accounting - Avoid entrusting the entire accounting to the same person.

Inventory control - Assign the recording of inventory to an employee who does not participate in the physical count.

Confirmation of delivery - Ask employees other than those in shipping to match the acknowledgement of receipt with the corresponding invoices.

Confirmation of sale - Have employees that pack the merchandise verify the prices entered on the invoice by a clerk or cashier.

Control of shift employees - Ensure that the employees who remain after closing are authorized to do so.

Unusual behaviour by employees - Be wary of employees who insist on performing certain duties which are not their responsibility.

Improving controls - Use your periodical inspections to identify trustworthy employees. They could help you to improve controls or supervise duties in a department other than their own.

Don't be content with dismissing an employee caught in a theft or fraud. Inform the police too.

Watch everything that enters or leaves your business, even garbage pails! Employees could hide stolen goods in them.

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Practice a good accounting

Anyone wishing to prevent theft and fraud should see to the rigorous control of expenses and income. Here are a few suggestions,

Purchase orders - Use numbered purchase orders for all purchases.

Packing slips - Compare packing slips with your purchase orders (ideally numbered) in a manner to prevent frauds (dual numbers, fraudulent payments, destruction of documents). Put the necessary mechanisms into place to confirm receipt of merchandise.

Credit cards - See that all expenses incurred on the company credit card had prior authorization.

Cheques - Retain cheque-signing authority for yourself or entrust this task to a person of trust. Keep your chequebooks under lock. Before issuing a cheque, verify the supporting documents (invoices, receipts).

Expense controls - Establish a limit (ex.: $100) over which all expenses must be submitted to you for approval.

Expense accounts - Closely monitor reimbursement of expenses. Some employees or associates inflate their expenses or attempt to be reimbursed twice by presenting the same receipt. Verify authorized mileage.

Deposits - Make the deposits yourself. If you delegate this task, ensure that the sums were fully deposited.

Discounts - Personally approve all forms of discount before they are offered to a customer.

Bank statements - Ask the bank to address the bank statements, chequebooks and other documents to you personally. It could be useful to receive this type of correspondence at a postal box rather than at your business.

Payroll time report - Establish rigorous measures to verify the number of hours performed by your employees. Falsification of this data is one of the most common offences.

Invoices - Closely monitor everything involving invoices. Use a numbered system.

Payroll - Regularly verify payroll. One of your associates or a service director could authorize fictitious work and pocket the amounts declared.

Pricing - Develop a precise policy for sales pricing in order to prevent frauds. Label your merchandise. Ensure that the prices requested of your customers correspond with those on your price list. A salesman could invoice your customer at one amount, produce a receipt for a lesser amount and pocket the difference.

Cash drawers - Ask your supplier about security systems for cash drawers. Surveillance cameras record the movements of employees and can integrate the amount, date and time of each transaction with the image.

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Manage the merchandise and equipment

Do you truly know where your inventory and equipment are? Attentively examine these recommendations.

Receiving - Ensure that products received are entered in your inventory.

Delivery - Seal the boxes in such a manner that the delivery personnel cannot open it prior to delivery to the client.

Complaints - Involve yourself in customer complaints pertaining to invoicing, discounts or questionable delivery practices. You might catch somebody in your company stealing.

Inventory of stocks - Without notice, periodically count the stock personally.

Delivery doors - Lock the delivery doors at all times. When they are opened for a delivery, they should be under constant supervision.

Equipment - Ask your local police station about having your expensive or important equipment engraved. Draw up and maintain current, a precise inventory of all your office equipment with the description, model and serial number of every article. Keep this inventory sheet in a secure location.

Empty boxes - Ensure that your inventory is not being removed with «empty boxes». Have your employees fold and stack all empty boxes.

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Use security systems

Do you have a good security system? It is important. To discourage theft and fraud by your employees or associates, here are three suggestions:

1. Install a video surveillance system in locations where cash or merchandise is handled (warehouse, store, cash drawer, etc.). Make sure you have quality tape in your video recorder. Otherwise, recorded images will make identification of suspects difficult. Digital equipment supplies a clear and precise image.

2. Affix posters and decals. Place them in plain sight at points of access to indicate to everybody that the business is protected by a security system.

3. Have good lighting. To record good images, cameras need light. See that places which are covered by your surveillance cameras are well lit (cash register, entrance door, warehouse, etc.) and remove boxes or other objects which could interfere with their field of vision.

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Control access control

By access control, we mean: control of keys, codes, combinations and locks.

Combinations, keys and access codes - Never give the combinations for access systems, safe or alarm system or even duplicate keys to anyone other than trusted employees. Change your codes, combinations and locks whenever an employee is terminated or resigns. Avoid leaving your keys within reach of everyone.

Duplicate keys - Rigorously control the number of duplicate keys in circulation. Forbid their duplication without your authorization. In a register, record dates and names of persons to whom you have assigned keys, or again, to whom you communicated information concerning combinations which provide access to the safe or to limited access zones.

Departure of an employee - When an employee leaves the company without returning his key, change the locks, access codes and combinations (alarm system, safe, etc.).

Keys for controlled locks - Ask your locksmith about keys for "controlled locks". One cannot copy them without written authorization from the holder of the reproduction licence. They cost more, but it is a profitable investment.

Leave all your important or confidential papers under lock and key: chequebooks, contracts, accounting and other documents.

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Manage data access

Be attentive to hackers accessing your computer system! Think of the impact which it would have on your business if an employee or partner deliberately altered or destroyed your computer data: payroll list, cost and price analysis, employee codes, development plan, market strategies, customers' list, etc.

To control access to your computer system:

  • Begin by assigning a password to every computer. Change it regularly.
  • Store laptops under lock and key in a filing cabinet or affix them to the desk with a security device which is capable of being unlocked, when needed.
  • Make copies of your important data. Secure them in a location other than your business or your company.

Moreover, the Internet assumes more and more importance in business. Watch that documents which are forwarded via data networks are transmitted in a confidential and secure manner. For example, use a digital signature.

DIGITAL SIGNATURE
The digital signature allows one to protect the confidentiality of documents in a workstation, on a server or on a floppy disk. It also allows one to protect documents transmitted by e-mail for three reasons:

  • the receiver is assured that the "document received " is identical to the "document sent" (integrity of data);
  • the identity of the sender is automatically confirmed (authentication of data) ;
  • The receiver cannot deny having received the document (non-repudiation of data).

To better understand how digital signatures can help you prevent frauds, communicate with Notarius. This division of the Chambre des notaires du Québec (Professional order of notaries in Quebec) specializes in technological options. You can reach the professionals from Notarius at the following numbers: (514) 281-1577 or 1 888 588-0011 or visit their website at www.notarius.com.

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Manage telephone lines

The telephone, facsimiles and the Internet are necessary work tools for the proper functioning of your business. However, certain fraud artists do not hesitate to abuse it for personal reasons (long distance calls, visits to Websites, etc.). They leave you with the surprise of excessive and unjustified telephone bills.

Establish and clearly communicate strict measures concerning the use of telephone lines, to your employees. Limit long distance access to certain employees only. Authorize these calls only from your premises.

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