Eight Ways a Small Business Can Prevent Fraud
Fraud is a scary word for any small business owner. No one thinks it will happen to them but it does happen to business owners every day. Unfortunately, we’ve seen firsthand how a trusted employee can take advantage of that trust and leave a deep dent in the company’s pocket. Not only is the money gone, but the business owner and other employees are hurt by the betrayal. Do you know what you can do to help reduce your business’ risk of fraud? Here are a few tips you can use to help protect your business from potential fraud.
1. Active Oversite.
The owner should receive an unopened bank statement so he or she can review it for suspicious transactions. Moreover, the principals need to ensure they understand the entity’s revenue and expense streams so they will be able to notice unusual trends.
2. Set a good example.
The most effective thing you can do to prevent fraud in your business is to create a working culture that values honesty and integrity. If you take a lax approach to company policies and procedures, your staff will be more likely to “bend the rules”, creating an open door for fraud. But if you model an attitude of compliance to your own policies and procedures, your employees will notice and you will be well on your way to eliminating fraud before it begins.
3. Restrict bank account access and perform regular bank reconciliations.
4. Use dual controls.
Never have one person writing, receiving and reconciling your business accounts. If you don’t have the staff to add a second person, consider using an outsourced accounting service to add dual controls.
5. Consider eliminating paper checks.
The more checks there are circulating for your company, the greater the chance they may be intercepted, duplicated or manipulated by a fraudster. If you must keep hard copies of checks, keep them locked away from those that have no need to access them.
6. Mandatory Vacations.
An employee who never takes a day off work is a red flag for fraud. Fraudulent employees fear that whoever does their job in their absence will notice that something isn’t quite right and their activities will be revealed. Safeguard your company by implementing a policy that requires all employees to annually take at least one week of vacation – in consecutive days.
7. Adequately prescreen employee applicants.
Fraud-proofing begins by hiring employees who are competent and trustworthy. You might be surprised how much you can learn about the character of potential employees before you hire them. Run pre-employment background checks to screen the applicant’s criminal history.
8. Treat employees well and have reasonable expectations.
If you’d like assistance improving your internal controls to help avoid fraud in your business, Taurus CPAs can help. With extensive audit experience and years of advising business owners, we can help document your current process and make recommendations for improvement to reduce the likelihood that your business will be a victim of fraud theft. Please contact Brett or Tammy for more information about this business advisory service.