Whether intentional or unintentional, fraud can happen to any business. Fortunately, there are steps you can take to minimize the risk of it happening to you.
Here are eight practices that can help protect your business from fraud:
Image Credit: Unsplash / rawpixel.
1. Make good hires
You must be diligent about background checks when hiring people to be in charge of your financials. Most people who commit fraud are repeat offenders. If one of your employees is going to embezzle from your company, they’ve likely done so before, probably in other states, so you need to do a thorough background check for any kind of criminal activity. Search anywhere the person has lived in the last ten years. Because these people will often move states, you should do a national criminal search in addition to a local one.
Image Credit: Unsplash / rawpixel.
2. Have a system
If you’re not tracking your data, then of course you won’t notice any inconsistencies or issues. Keep in mind that your system is only as good as the information in it. You can’t have a system where people work on it only now and then, whenever they get a chance.
Have scheduled dates to pay your vendors and your employees. Close your books on a certain date each month and make sure all the invoices and bills are entered into the system daily or weekly. And put an alert in place to notify you if anything deviates from the schedule so that you can get caught up as soon as possible.
Image Credit: Unsplash / rawpixel.
3. Double-check your numbers
I can’t stress enough how important it is to double-check, no matter how much you trust the person in charge of your financials. I even want my clients to double-check my work. I already double- and triple-check my own work, so I know there aren’t likely to be mistakes, and I know that I’m not embezzling, but I want double-checking to become second nature for my clients. It is that important.
Image Credit: Unsplash / rawpixel.
4. Good cash practices
Proper cash practices are absolutely critical to preventing fraud. Have good deposit practices, and if your business is cash-heavy, institute daily deposits. Make sure deposits are verified by the bank, physically count the cash and make sure it balances out, keep a log of how much petty cash is used and on what, and set limits on how much petty cash employees can use for various expenses and require approval for purchases over that amount.
Image Credit: Unsplash / rawpixel.
5. Safe check practices
Set up procedures for writing and signing checks and stick to them. Don’t use a signature stamp. If you use a signature stamp, all someone has to do is “borrow” it, and then they can start making checks out left and right. Require approvals for all bill payments, and don’t give anyone check-signing authority without rules and limitations. Limit the number of check signers to just one or two people. Never sign a check that isn’t directly attached to a bill and sign checks in one batch so that you don’t lose track of what you’re signing.
Image Credit: Unsplash / rawpixel.
6. Smart credit-card practices
Anytime you give an employee a company credit card, you must establish clear rules and limitations. Always use credit cards over debit cards, determine what kind of expenses employees may use the card for and how much they are allowed to spend each day, establish a dollar amount at which employees need to get approval from a superior for a transaction, and set credit card limits for each cardholder.
Image Credit: Unsplash / rawpixel.
7. Have a Review Process
Your accounting system is only as good as the information in it, so you want to double-check that the information in your system is accurate. Call your top ten vendors and make sure there are no outstanding invoices. Compare your customers’ contracts with the invoices they received, as the two might be different. Attach all the original records to the relevant transactions. Do an independent spot check of inventory, with a separation of duties between at least two people. Lastly, review source documents and ask your bookkeeper questions.
Image Credit: Unsplash / rawpixel.
8. Compare your costs and sales
What business owners often don’t realize is that a lot of times when you’re auditing a set of books, you’re not just looking at the sales—you’re also looking at the costs. If you spend x amount on costs, you expect to make y amount in profit. By looking at your costs, you can determine what your sales should have been and pick up on potential discrepancies in the books.
Sometimes you will find honest errors that can be corrected to increase your profit, and sometimes you will find that there aren’t any reasonable answers for the discrepancy, tipping you off to potential fraud. By following these best practices, you can reduce the risk of fraud happening to you and improve your ability to handle it if it does.
Elizabeth Hale is the author of Protect Your Profit, and the founder of eeCPA, which has been providing clients with customized accounting solutions since 2004. Hale has worked with small- to medium-sized businesses for more than twenty-five years and has owned and operated several businesses. In addition to being a member of the American Institute of Certified Public Accountants and the Arizona Society of CPAs, she serves as the finance director of the Entrepreneurs’ Organization.
This article was syndicated by MediaFeed.org.
Image Credit: Unsplash / rawpixel.
