🟠 9 Small Business Thefts (and How to Stop Them Cold)

The SMB Scoop is the newsletter to help you find, buy, operate, and invest in cash flowing small businesses.

Running a small business comes with its own set of challenges, and one of the most significant yet often overlooked issues is theft. I think every business owner has been stolen from at some point, it’s really a right of passage. But most of it is avoidable if we have the right controls & people in place. Inspired by a @arestaurant_guy X post, here are nine ways theft can occur in a small business, and how you can safeguard against them.

But first, a plug from my portfolio company:

Frustrated with your current IT provider (or don’t have one)? Last year, I acquired a top performing IT Managed Service provider serving SMBs with 10-150 employees. My team at DataTel ensures business owners sleep well at night knowing their devices, network, and infrastructure are secure from growing threats, and that when attacks do happen (it’s inevitable), we will keep you protected.

We offer 2 solutions…

1: Fully Managed IT: unlimited help desk support and issue resolution + best in class toolset deployed + market leading Antivirus (with EDR) + backups + spam protection + phishing training and awareness training + virtual CIO + EDR (endpoint detection and response) + 24/7 MDR (real live people active threat hunting) + 24/7 NOC. We drive your IT forward as an extension of your team so you can spend time growing your business.

2: Monitoring only: This includes our baseline monitoring toolset only: market leading Antivirus (with EDR) + remote patching + 24/7 monitoring. This is an ideal solution for those who are budget constrained but want partial protection and an expert to call who knows your setup when you get into a bind.

We’d love to help you with your IT problems (or point you in the right direction if we are not a fit for you):

1. Hide the Expense Salami

An employee buys a coach plane ticket as per company policy but upgrades to first class and only submits the final bill amount, hiding the upgrade cost detail.

Solution: Implement a policy requiring detailed receipts and pre-approval for any travel upgrades. Assign someone to audit and verify travel expenses.

2. Payroll Manipulation

An employee creates a fake worker or alters payroll records to receive extra wages, exploiting a not-detail-oriented owner.

Solution: Use payroll software with audit trails. I use Gusto for my HR & payroll platform which provides excellent visibility, reporting, and payroll controls. Separate payroll responsibilities among different staff members to reduce the risk of manipulation. Don’t give one person complete access to do payroll & send wires without checks and balances. You may consider outsourcing payroll to a third party provider to reduce the risk further.

3. Time Card Fraud

An hourly employee logs 8 hours on their time sheet but only works for 5.

Solution: Utilize time-tracking software with GPS capabilities. Regularly review time sheets against work output. Sometimes this is just a cost of doing business. I recommend the Gusto time tracking feature which has the ability to check GPS location when an employee logs in as well.

4. Inventory Theft

Employees take products, supplies, or equipment for personal use or to sell elsewhere.

Solution: Implement strict inventory controls with regular audits. Use security cameras and limit access to high-value items.

5. Cash Theft

In cash-heavy businesses, employees pocket money from transactions, void sales, or manipulate receipts.

Solution: Conduct regular, unannounced cash audits. Use point-of-sale systems that track all transactions and require management approval for voids and refunds. Try to reduce the use of cash where possible. Credit cards might cost money in transaction fees but they’ll likely save you as much in cash shenanigans.

6. Double Dip Reimbursement

An employee requests reimbursement for mileage personally and also charges it to the company card.

Solution: Enforce strict expense reporting policies requiring original receipts and detailed logs. Do periodic audits of expense reports. Require actual detail over a certain dollar amount.

7. Fake Expenses

Employees submit fake expense reimbursements for non-existent purchases.

Solution: Require your employees to provide detailed receipts and descriptions for all expenses. Randomly verify if the expense is legit.

8. Fake Invoices

An employee creates fake invoices, possibly from a fictitious company, and gets them paid by Accounts Payable.

Solution: Implement a vendor verification process and require multiple approvals for new vendors and large invoices. With your AP process, require multiple verification points. I use Ramp for my employee spend and AP/invoicing (it’s really really sweet) which solves most of these headaches for me. I implemented Ramp the first week I acquired my last business and my employees resounding loved it vs the previous expense process. It was an easy win to show I’m going to make changes that will everyone’s life and job better.

9. Kickbacks

Employees getting kickbacks from suppliers or vendors, which should rightfully belong to the employer.

Solution: Establish a code of ethics and conduct regular supplier audits. Rotate staff in procurement roles to prevent long-term collusion. Having managerial relationships with each vendor is critical vs letting individual sales representatives own the vendor relationship.

To mitigate these risks at a high level:

• Understand Common Theft Methods: Knowing how theft can occur is the first step to prevention. Reading something like this is helpful to see where you might have exposure in your particular business. Always look at accounting first.

• Implement Robust Financial Controls: Ensure no single person has control over an entire financial function. This means bank + payroll + financials/reporting.

• Increase Visibility and Reconciliation: Regularly review payroll, AP, and bank transactions. Don’t take it on face value, vet and validate.

• Hire for Integrity: Conduct thorough background checks and hire for integrity. Hiring good people solves most problems.

Looking to…?

• Partner with a new IT provider? Schedule your discovery call with a DataTel Managed IT solution engineer to analyze your current IT infrastructure & painpoints.

• Invest passively in SMBs? Join Accredited investors only…check out the SMB Junction Capital Connector investor network to get in the flow of off-market deals (self funded, independent sponsor, private equity)

• Raise equity capital? Submit your deal under LOI for free to the SMB Junction Capital Connector to get intros to value-add accredited investors

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The SMB Scoop 

Ben Tiggelaar

Things I’m currently working on: www.bardocapital.com, www.smbjunction.com, www.datatelco.com