Ten Ways a Small Business Can Prevent Fraud

December 17, 2009 | Subscribe to our RSS Feed

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 automated banking service to add dual control.
5. Eliminate 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.
6. Give employees a way to report fraud. Employees should also be provided with a way to anonymously report incidents of fraud within the company. Many employees are hesitant to report incidents of fraud because they are afraid of either losing their jobs or being alienated by their peers. Anonymous reporting not only alerts you to potential problems, but also limits the ability of fraudsters to intimidate their coworkers into silence.
7. 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.
8. Adequately prescreen employee applicants. Fraud-proofing begins by hiring employers who are competent and trustworthy. You might be surprised how much you can learn a lot about the character of potential employees before you hire them. Run pre-employment background checks to screen the applicant’s criminal history,
9. Have a written code of ethics.
10. Treat employees well and have reasonable expectations.

Submitted by Jake Flowers, CPA and Jennifer Verch, CPA, CFE

Questions:

jake.flowers@glassjacobson.com

jennifer.verch@glassjacobson