Partner Article

Three Ways of Protecting Your Business from Fraud

Nothing can bring a business to its knees faster than fraud. Competition, a weak economy, or faulty products are only half the problems facing any business, big or small. Businesses must contend with fraud in order to maintain a successful business plan. No company is safe from fraud, in fact the larger the business the more tempting a target it can become. On the other hand, small businesses are easily targeted as well.

The reasons for targeting any business will vary. Small businesses can become a target because criminals believe they lack a team devoted to fraud protection. Big business can become a target because criminals believe they are “too big” in many cases to notice small fraudulent activities performed over the course of time.

Where to Start

Regardless of the reasons for being targeted, any business is capable of putting a halt to fraud. The best approach for any business is to be proactive. Don’t wait for fraud to hit, but rather set up defenses beforehand to ensure fraudulent activities never stand a chance. Effective steps here include establishing a code of conduct for employees to follow, with an emphasis on the importance of fraud prevention. The best way to deter employees is to inform them of what the company, and by extension the employees themselves, stand to lose through fraudulent activities.

Fraud can negatively impact everyone in a company by bringing about lost profit, negative publicity, job loss, and decreased morale. Inside tips from employees who have spotted potential fraudulent activities are the best starting points in any battle against fraud.

Establish Hiring Controls

One of the best places to start with fraud prevention is to ensure that the best of the best are employed within the organization. Whether your business is big or small, hiring employees should go beyond a simple resume, reference check, and interview. Dig deeper to learn more about the individuals under consideration by conducting criminal background checks. Investigate the credit, educational, and personal background (through references) of potential employees before hiring anyone.

After they’ve joined your company, conduct regular performance evaluations and quiz employees on their knowledge of and compliance with the company’s fraud prevention programs.

Develop Effective Controls

Hiring the right people is just one step in the process. Without effective controls in place to prevent and deter fraud, even the best employee could be tempted to commit fraud if the benefit seems big enough or the process easy enough. The best control to implement is separation of duties. As much as possible, separate bookkeeping duties so that one individual is not in control off all the company’s financial records and transactions.

Other controls include requiring two signatures on large checks, having a non-finance employee conduct bank transactions, and never allowing bookkeepers to take their work home.

Know What Activities to Look For

In the end it comes down to the individuals within the company to watch for suspicious and fraudulent activity. This can’t be accomplished however unless individuals know what to look for. Small businesses most often suffer from check fraud. Keep a close watch on company checks when they are made out. Ensure they are being written only to credible, known vendors and never to personal accounts or unknown vendors.

It is also a good idea to conduct regular audits of petty cash accounts, credit card accounts, and expense reports. Ensure that everything being paid for has proper documentation that is verifiable.

Fraudulent activity doesn’t have to happen in one big step to cripple a business. There are countless news stories each year of small business employees skimming millions of dollars from their employers over the course of years, if not decades. Attention to detail is vital in preventing fraudulent activities from crippling your business. According to the Certified Fraud Examiners, a small business with fewer than 100 employees tends to suffer greater losses each year through fraud than any other category of business. No one is immune to fraud, so vigilance is critical.

This was posted in Bdaily's Members' News section by Steve Gott .