Many small businesses rely on a handful of trusted employees to be the smiling face a customer first encounters upon arrival. They also rely on these employees to oftentimes collect payment and handle sensitive data. The front desk can often be classified as the nerve center for many small businesses. Many of these businesses include dentist offices, fitness studios, small hotels, and retail boutiques. These employees build loyalty with customers and offer immediate service accompanied with a smile. However, ethically charged workers may see these positions as opportunities to steal. Here’s how to recognize internal fraud risk and how to prevent it.
Common Schemes
Payments, scheduling, and customer interactions often happen at the front desk. Minor lapses in oversight, combined with workers bent on committing fraud, can lead to financial losses. Common internal fraud risk schemes include:
Cash skimming. This involves underreporting sales and pocketing the difference. Warning signs include mismatched totals or excessive no-sales.
Refund and void abuse. Here, an employee might process false credit card refunds to friends and family members — or even themselves.
Fake discounts or free services. Crooked employees might extend markdowns or complimentary services to people they know. Customer visits without corresponding sales transactions may signal fraud.
Appointment manipulation. This applies to “ghost” appointments or false cancellations that enable perpetrators to hide missing payments or pocket deposits. Appointment activity with no corresponding increase in foot traffic may indicate appointment book manipulation.
Such schemes can flourish when a business places excessive trust in employees, lacks automated point-of-sale and scheduling systems, or fails to segregate tasks involving money and recordkeeping. Frequent cash transactions and reliance on paper (vs. digital) records generally make it easier to perpetrate fraud. Also risky: scant owner or management oversight and infrequent account reconciliation.
Simple Prevention Methods
Fortunately, effective internal controls don’t require expensive software or new staff, simply a few consistent and well-thought-out habits. For example, you should require supervisor approval for all refunds, voids, and manual discounts. That said, don’t ignore the possibility that a supervisor might be colluding with a front desk employee. Unusual increases in the number of refunds, voids, and discounts should be investigated.
You might also set transaction limits for the number and amounts associated with specific employee logins. And, when one employee accepts customer payments, another employee should reconcile end-of-day totals. If you don’t have the staffing to segregate these duties every day, doing so on a part-time, random basis can still help reduce fraud risk.
In addition, use technology you already own or invest in inexpensive upgrades. For example, consider producing daily automated reports from point-of-sales and scheduling systems. Or you could place security cameras near your front desk to let employees know that management is watching. Finally, enabling activity alerts on bank and merchant accounts allows you to view questionable transactions in real time.
Controls Protect Everyone
To help ensure your internal fraud risk prevention measures are accepted, explain to employees that internal controls are designed to protect both them and customers from fraudulent activity. Then reinforce your policies through short, periodic staff meetings where you recognize employees who catch errors or deceptive customers.
If you suspect a internal fraud risk involving your frontline employees — or anyone in your business — contact us for help. We can also help assess your company’s anti-fraud controls, identify vulnerabilities, and suggest cost-effective ways to safeguard your assets and bottom line.
