Almost every company is susceptible to business fraud. Unfortunately for small businesses, the risk is even greater because just one instance of business fraud could wipe out a small firm. It is critical for business owners to take the necessary steps to prevent fraud.
Establish an Environment of Integrity
Letting employees know that honesty and integrity are core principles of the business is a good start. Fostering a reputable working environment can generate a culture of ethical behavior.
Create a company ethics policy and distribute it to all employees. The policy should detail exactly what constitutes acceptable employee behavior in all areas, from interactions with clients to proper accounting and financial management procedures.
Obviously, establishing a code of ethics isn’t enough to prevent fraud, but employees tend to follow the leader. If employees know that ethics are an important part of business, they may be less likely to commit acts that would go against that code.
Put Safeguards in Place
One of the most important steps a business owner can take to prevent business fraud is to limit the opportunities of employees to do so. Internal controls that establish adequate oversight of financial reporting practices are imperative. This includes proper separation of duties in the accounting department.
Separation of responsibilities means that at least two trusted employees should handle the books. If only 1 person is in charge of all the record keeping, there isn’t oversight in place that will uncover unusual and possibly fraudulent activity.
This can be accomplished by having different employee’s record transactions and audit financial/bank statements. For smaller businesses with very few employees, the owner should personally oversee these functions.
Auditing is Key
It is essential to examine financial records, even if the individual responsible for managing accounting and finance is a trusted employee. In addition to uncovering potential business fraud, an audit of financial records should serve to correct accounting mistakes and monitor the record keeping process.
Review all pertinent financial documentation such as invoices, delivery receipts, purchase orders, and inventory counts.
Enable Fraud Reporting
For some employees, it can be hard just to report any suspicious activity that may result in a coworker getting in trouble. To solve this problem, establish a notification system that lets employees anonymously report any potential business fraud which should be investigated.
Work with the Bank
Banks spend a lot of money on fraud protection services. Talk to your bank about services that can help prevent fraud.
Most banks offer services such as safeguards against check fraud which verify the authenticity of checks written from a business account. For example, checks presented to the bank for payment are compared to a check on file.
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