4 Ways to Protect Your Business from Fraud

According to the Certified Fraud Examiners, small businesses with less than 100 employees have higher losses due to fraud when compared with other categories of business.  Review these four tips to protect your business and bottom line.  Remember, your involvement is key!

1. Be proactive and train employees in fraud prevention.  Adopt a code of ethics for employees and communicate the costs of fraud to the company and everyone in it — including lost profits, adverse publicity, job loss and decreased morale and productivity.  Ensure that employees know how to report instances of fraud as internal tips draw attention to instances of fraud more than any other detection mechanism.
    
   
2. Implement effective fraud and embezzlement controls.  One key to protecting your business is ensuring that more than one person is managing the financial records.  With a small office and maybe only one bookkeeper, segregation of duties may seem impossible. If the number of staff limits segregation of duties, options may include hiring another part time person to take care of only payroll or outsourcing certain duties to your CPA firm.  Proper separation of duties includes two signatories on checks above a certain dollar amount, ensuring that the person recording cash receipts is not the same person making the deposits, and assigning bank reconciliations to someone other than the individual handling cash receipts and disbursements.
   
   Additional controls may include regularly rotating bookkeeping duties, requiring vacations/time off and never allowing bookkeepers to take work home.
3. Know what to look for.  Small businesses are more likely to be victims of check tampering.  Because of this, it’s important to educate yourself on telltale signs that something might be wrong.  Common forms of embezzlement include forgery of checks and checks payable to the perpetrator or their personal vendors. Make sure all checks are made out to vendors you actually work with as embezzlers often create bogus vendors and submit payments for fake invoices.  If verified vendors are not being paid or customers are not receiving refunds, it may be that the funds have been redirected to the embezzler’s accounts.  Further, ensure employees have not received extra paychecks or bonuses.
   
   Additional controls can include regular audits of petty cash, credit card charges and expense reports and ensuring payments have appropriate documentation attached.  Finally, be sure to take the time to investigate any discrepancies.
4. Establish hiring procedures. Every company, regardless of size, can benefit from formal employment guidelines. When hiring staff, conduct thorough background investigations. Check educational, credit and employment history, as well as references. After hiring, incorporate evaluation of the employee's compliance with company ethics and anti-fraud programs into regular performance reviews.

For more information on steps you can take to protect your business, contact any one of the Bergan Paulsen team members.  

Source: The ACFE’s 2010 Report to the Nations on Occupational Fraud and Abuse

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