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Fighting FRAUD

HOW TO RECOGNIZE AND PROTECT AGAINST EMPLOYEE FRAUD AT YOUR BAR. BY MIKE ROSENAU

Photo: Shutterstock/ Zephyr_p. T he kinship built amongst staff at a bar is a relationship rarely found anywhere else—built through late nights, social events, and trying situations. Unfortunately, employee fraud happens in every industry, and the bar industry is no different. The “2018 Global Study on Occupational Fraud & Abuse” from the Association of Certified Fraud Examiners (ACFE) found that the typical organization loses an estimated 5% of its annual revenues to occupational fraud. In that same study, the ACFE found that the median loss caused by occupational fraud was $130,000. This is a loss no bar can afford. Occupational fraud can result from theft of money, securities, or other property of the employer, and it can be damaging to your business’s bottom line and reputation.

KNOW THE RED FLAGS Red flags, such as the ones below, can help alert you to potential cases of employee fraud: • Employee lifestyle changes (expensive cars, jewelry, homes, etc.) • Significant personal debt and credit problems • Behavioral changes (an indication of drugs, alcohol, gambling, or fear of losing the job) • Refusal to take vacation or sick leave (many violations are discovered while the perpetrator is on vacation) • Lower deposit amounts than expected on busy days

ADD EMPLOYEE FRAUD RECOGNITION TO YOUR TRAINING You can mitigate the risk of employee fraud through training and internal controls. Teach employees and managers the impact fraud can have on the organization, what constitutes fraud, the warning signs of fraudulent activity, and how to report suspicious behavior. In the event of fraudulent activities, it’s important that business owners have a fraud reporting system in place as employee tips are what most often uncover occupational fraud.

Institute an anonymous reporting system for employees, vendors, and customers to report any suspected or actual violations. Craft and implement anti-retaliation policies that actively encourage employees to report suspicious activity.

IMPLEMENT INTERNAL CONTROLS Internal controls can help mitigate the risk of employee fraud and ensure efficient operations, compliance with laws and regulations, safeguarding of assets, and accurate financial reporting. These policies/procedures should address:

Separation of duties: Implement a practice in which two separate employees are responsible for recording and processing a transaction.

Access controls: Restrict access to physical and financial assets and information, including bank accounts and credit card transactions, to authorized employees.

Authorization controls: Develop and implement policies to determine how financial transactions are initiated, authorized, recorded, and reviewed.

Policies: Establish and communicate strict policies for accessing company assets such as business inventory.

Exposure to cash: Monitor cash transactions closely and request receipts for all transactions.

Audits: Institute regularly scheduled and occasional random audits by a qualified financial professional like a CPA.

It’s also best practice for business owners to conduct extensive background checks on those who have access to company funds and other resources.

Employee fraud and dishonesty take a toll on bars of all sizes. By identifying potential red flags, adding the topic to employee training, and implementing checks and balances, you will be able to take action to reduce the risk of fraud.

Mike Rosenau is director of Risk Control at Society Insurance. He has a Bachelor of Science in Fire and Safety Engineering Technology, Master of Science in Loss Prevention and Safety, and Master of Business Administration. He holds these designations: Certified Safety Professional, Certified Fire Protection Specialist, Certified Safety and Health Manager, Associate in Risk Management, and Occupational Health and Safety Technologist. For more on keeping your bar safe and profitable, visit societyinsurance.com.