Fraud isn’t something that only takes place within large businesses. In fact, small businesses are often times easier targets for fraudulent activity. This often has to do with smaller staff size and the fact that employees within in smaller operations tend to have access to more information and financial matters that pertain to the business. Small business owners form good bounds with their employees and trust them, but sometimes, that trust is misplaced.
The types of fraud that generally take place within in small businesses include theft of inventory and other items, cash theft, theft through payroll and expense practices, tampering with checks, billing fraud and much more.
Small business owners can take a number of steps in an attempt to keep this type of activity at bay. These include:
1.) Review bank statements every single month: Don’t let even one month go by where you don’t spend time really reviewing this valuable information. This is where you may see suspicious activity such as overdrafts, payments made to unknown vendors, missing checks, double payments and more. Never leave these red flags untouched. Always investigate anything that looks fishy on your bank statements.
2.) Have designated check signers/bill payers: In the small business environment, only the business owner should be signing checks and issuing payments. If you must designate another employee to do this, limit it to just one other person. Ask to review the payments before they go out. Also, never sign blank checks or incomplete invoices.
3.) Password protection: Be sure that all information about finances and businesses practices are password protected. Passwords on things such as bank accounts, payroll elements, client information etc. should not be easy to guess or be shared and should be changed often.
4.) Know what you have: Most of the time when we think of fraud we think of money. Sure, as a small business owner you need to be aware of things such as how much petty cash you have, and it needs to be kept under lock and key. However, your inventory needs protecting as well. Always know how much stock you have and keep tight records of when it has been purchased and where it was sent. This will keep you from backtracking to find missing items. Those missing items often times aren’t missing, they have been stolen. Slipping up and not keeping your inventory up to date could result in large amount of lost revenue for your business. Also keep tabs on in-house items such as office supplies, coffee, etc. You paid for those items and if an employee takes them, it is fraud.
5.) Establish a safe way to report fraud: Make your team aware that you have controls in place to try and prevent fraud. Simply sharing that you know it is a possibility can go a long way. Also, create a method for reporting fraud within your organization. Create an email or chat feature that allows employees to share concerns. Have a box where they can anonymously alert you to suspicious activity.
6.) Insurance is key: Insuring your small business against fraud is a no brainer. You will need the help of your insurance company if you are hit with fraud. Many policies can help you recover some assets in the event of fraudulent activity. Discuss coverage options and limits with your insurance company.
7.) Go with your gut: As the small business owner, you know your employees best. If you notice a change in a team member’s behavior that is concerning, don’t ignore it. Acting nervous or not wanting to share important tasks with other team members is something to keep an eye on. Events that pop up that the employee must explain away should be investigated.
This is only the tip of the iceberg when it comes to ways small businesses can be hit with fraud and the ways to handle it or prevent it. One of the top benefits of working with an outside accounting firm is the level of trust that comes with it. Knowing that a trusted accounting team is handling all banking and payroll matters, is securely paying your bills for you, etc… now that is peace of mind. To learn more about our services, reach out today.