About 12 years ago, one of my partners, Carmen Milbury and I helped a client find and litigate a fraud perpetrated by an employee. That employee had been with the Company for more than 14 years. The damages were in the millions and we were successful in getting a judgement for almost two million dollars (though the actual amount, including the amount beyond statute) was about double that. The person who perpetrated the fraud was the owner’s friend and confidant, as well as an employee. It was horribly sad and ended also with the closing of a business that had been a vibrant part of the community and helped dozens have a livelihood.
For small business owners, your employees are often like family. You rely on their loyalty, especially those who’ve been with you for years, to keep operations running smoothly. But a sad and sobering reality, backed by the 2022 Association of Certified Fraud Examiners (ACFE) Report to the Nations, reveals a harsh truth: 45% of occupational fraud cases are committed by employees with over five years of tenure. These are the people you’re most likely to trust—yet they’re often the ones you need to watch. Trust is essential, but it should never replace vigilance when safeguarding your business.
The ACFE’s findings paint a stark picture. Long-tenured employees, with their deep knowledge of your systems, processes, and even your habits, have unique opportunities to exploit vulnerabilities. They know where the gaps are—whether it’s a loosely monitored expense account, an outdated inventory system, or a lack of oversight in financial reporting. Their familiarity breeds not just confidence but also the ability to cover their tracks. For small businesses, where resources are tight and owners often wear multiple hats, this statistic is a wake-up call. The trusted veteran who’s been with you since day one could, in rare but devastating cases, be the one quietly siphoning funds.
Why does tenure increase risk? It’s not just about opportunity. Long-term employees often feel a sense of entitlement or justification. They might believe their years of service “earn” them the right to bend rules, especially if they’re facing personal financial pressures. The ACFE report notes that fraudsters often rationalize their actions, convincing themselves they’re “borrowing” or “deserve” it. For small businesses, where every dollar counts, the impact of such betrayal can be catastrophic—think drained bank accounts, disrupted cash flow, or even bankruptcy.
So, how do you protect your business without fostering a culture of distrust? The answer lies in balancing trust with vigilance through practical, proactive measures. Start with segregation of duties. No single employee, no matter how trusted, should have unchecked control over critical functions like bookkeeping, payroll, or vendor payments. For example, the person who writes checks shouldn’t be the same one reconciling the bank statement. If your team is small, consider outsourcing key tasks or rotating responsibilities periodically to keep oversight fresh.
Next, implement regular audits. These don’t have to be costly or complex. Simple steps like reviewing financial statements monthly, spot-checking expense reports, or hiring an external accountant for an annual review can deter potential fraudsters. Technology can also be your ally. Affordable software can track inventory, flag unusual transactions, or automate expense approvals, reducing reliance on manual processes prone to manipulation. The ACFE found that businesses with anti-fraud controls, like surprise audits or tip hotlines, lose significantly less to fraud than those without.
Training is another powerful tool. Educate your team about fraud risks and the importance of ethical behavior. Make it clear that no one is above scrutiny, and create an environment where employees feel safe reporting suspicious activity. A confidential reporting system, even something as simple as an anonymous suggestion box, can uncover issues before they escalate.
These steps might feel like overkill, especially when you’re juggling the demands of running a small business. But the ACFE’s sobering statistics remind us that fraud doesn’t discriminate—it can happen to anyone, anywhere. The median loss from occupational fraud for small businesses is $150,000, a sum that could cripple most operations. By contrast, the cost of implementing basic controls is minimal, both in time and money.
Trusting your employees is the heart of a strong team, but blind trust can leave you vulnerable. The reality that long-tenured employees are among the most likely to commit fraud is a tough pill to swallow. Yet, by pairing trust with vigilance—through clear processes, regular oversight, and a culture of accountability—you can protect your small business without sacrificing the human connection that makes it special. Stay proactive, stay alert, and keep your business safe.
For small business owners, your employees are often like family. You rely on their loyalty, especially those who’ve been with you for years, to keep operations running smoothly. But a sad and sobering reality, backed by the 2022 Association of Certified Fraud Examiners (ACFE) Report to the Nations, reveals a harsh truth: 45% of occupational fraud cases are committed by employees with over five years of tenure. These are the people you’re most likely to trust—yet they’re often the ones you need to watch. Trust is essential, but it should never replace vigilance when safeguarding your business.
The ACFE’s findings paint a stark picture. Long-tenured employees, with their deep knowledge of your systems, processes, and even your habits, have unique opportunities to exploit vulnerabilities. They know where the gaps are—whether it’s a loosely monitored expense account, an outdated inventory system, or a lack of oversight in financial reporting. Their familiarity breeds not just confidence but also the ability to cover their tracks. For small businesses, where resources are tight and owners often wear multiple hats, this statistic is a wake-up call. The trusted veteran who’s been with you since day one could, in rare but devastating cases, be the one quietly siphoning funds.
Why does tenure increase risk? It’s not just about opportunity. Long-term employees often feel a sense of entitlement or justification. They might believe their years of service “earn” them the right to bend rules, especially if they’re facing personal financial pressures. The ACFE report notes that fraudsters often rationalize their actions, convincing themselves they’re “borrowing” or “deserve” it. For small businesses, where every dollar counts, the impact of such betrayal can be catastrophic—think drained bank accounts, disrupted cash flow, or even bankruptcy.
So, how do you protect your business without fostering a culture of distrust? The answer lies in balancing trust with vigilance through practical, proactive measures. Start with segregation of duties. No single employee, no matter how trusted, should have unchecked control over critical functions like bookkeeping, payroll, or vendor payments. For example, the person who writes checks shouldn’t be the same one reconciling the bank statement. If your team is small, consider outsourcing key tasks or rotating responsibilities periodically to keep oversight fresh.
Next, implement regular audits. These don’t have to be costly or complex. Simple steps like reviewing financial statements monthly, spot-checking expense reports, or hiring an external accountant for an annual review can deter potential fraudsters. Technology can also be your ally. Affordable software can track inventory, flag unusual transactions, or automate expense approvals, reducing reliance on manual processes prone to manipulation. The ACFE found that businesses with anti-fraud controls, like surprise audits or tip hotlines, lose significantly less to fraud than those without.
Training is another powerful tool. Educate your team about fraud risks and the importance of ethical behavior. Make it clear that no one is above scrutiny, and create an environment where employees feel safe reporting suspicious activity. A confidential reporting system, even something as simple as an anonymous suggestion box, can uncover issues before they escalate.
These steps might feel like overkill, especially when you’re juggling the demands of running a small business. But the ACFE’s sobering statistics remind us that fraud doesn’t discriminate—it can happen to anyone, anywhere. The median loss from occupational fraud for small businesses is $150,000, a sum that could cripple most operations. By contrast, the cost of implementing basic controls is minimal, both in time and money.
Trusting your employees is the heart of a strong team, but blind trust can leave you vulnerable. The reality that long-tenured employees are among the most likely to commit fraud is a tough pill to swallow. Yet, by pairing trust with vigilance—through clear processes, regular oversight, and a culture of accountability—you can protect your small business without sacrificing the human connection that makes it special. Stay proactive, stay alert, and keep your business safe.
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