Preventing fraud may not be top-of-mind for most small-business owners, but accounting professionals understand that fraud is a real – and potentially costly – risk. Small businesses are more likely to become victims of fraud than larger businesses.
In fact, Small businesses are the most vulnerable to occupational fraud and abuse, according to the Association for Certified Fraud Examiners (ACFE). In its 2002 Report to the Nation on Occupational Fraud and Abuse, ACFE cites that the smallest organizations, 100 employees or less, suffered higher median losses than did the largest organizations (10,000 employees or more). For a small business, such a loss can be devastating.
So how can cash-strapped small businesses minimize their odds of being fraud victims? We spoke with a few experts who recommend the following low- or no-cost options. Small business bookkeeping services is definitely one answer, but below we have highlighted 5 additional tips to avoiding fraud.
1. Educate Yourself
Not sure what fraud actually looks like? The types of fraud that you need to be aware of fall into three categories:
- financial statement fraud
- asset misuse
ACFE says theft is the most common, including:
- stealing cash
- claiming fake expenses
- taking property
- Employees are the main culprits, which can be tough for your small businesses to swallow. They often consider their employees as friends or members of an extended family.
2. Make & Enforce Rules
Small businesses typically don’t have time to create a code of conduct. That’s likely why only 53.8 percent of them have such codes, compared to 91.3 percent of larger businesses. But it’s for sure worthwhile to put together rules for handling small business finances.
Small businesses often feel immune to fraud but owners should introduce controls. They can detect (and help prevent) fraud by:
- restricting employee access to financial account data
- limiting access to inventory or stock
- establishing multi-person sign-off for:
- expense claims
- check writing
- other accounting or payroll functions
- using audit logs or audit trails to track and trace all financial transactions
Modern accounting software logs user activity, allowing owners and accountants to identify suspicious activity.
3. Automate Bill Payments
Putting bills on auto-pay can be an effective way to prevent fraud. Using the bill-pay feature on your business bank account will send payments automatically instead of having an employee have access to the checkbook. Additionally, it is important to make sure the person who pays the bills is also the person who opens the mail. This eliminates a huge opportunity for fraud.
There are also several QuickBooks apps that help automate payment tasks. And if you’re ready to take security a step further, consider going completely paperless. Sites like Bill.com and Hubdoc offer this service, allowing you to track all your financial documents in one place.
4. Audit High-Risk Areas Often
Catching an employee off guard could be your best bet in discovering fraud. “The key is that an employee generally doesn’t know what’s coming and won’t have the time to change the records to hide the fraud. Small business owners should routinely audit areas of their business that deal in:
- product returns
- inventory management
- accounting and bookkeeping functions
Employees should be told that audits will take place but there shouldn’t be a schedule. By making the audits random, your clients are more likely to dig out fraud. The ACFE also offers a check-up to assess fraud prevention processes. This check-up can be a good place to start.
5. Enforce Mandatory Vacations
Research has shown that if employees don’t take a vacation, it can be a red flag. They’re afraid to go on vacation because someone is going to find out that something is not right. Requiring employees to take time off can aid in the prevention of some frauds
6. Know Who You’re Hiring
Every business tries to hire honest employees. But hoping for the best doesn’t always work. Conduct background checks for people handling inventory and money. Check past employment, criminal convictions, references, and education and certifications. Also, conduct drug screening since often, employees will steal from business to support an addiction. Remember, however, to always get the written consent of candidates before doing research since many federal and state laws govern the gathering of such information.
7. Small Business Bookkeeping Services
Small business bookkeeping services specialize in handling the books of numerous small businesses. Their reputation and entire business lie on accuracy and honesty- and small business bookkeeping providers have numerous internal controls in place to ensure fraud is never an option. Outsourced bookkeepers have the technology and systems in place to ensure that your books are safe!
Limitless Investment and Capital Small Business Bookkeeping Services in Phoenix
Losing sleep because systems aren’t in place to prevent fraud and catch errors? Limitless Investment & Capital’s small business bookkeeping services can help you get organized, reduce the amount of time it takes to review the financial health of your business and deter employee fraud. Schedule a consultation with our team today!