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Six Strategies For Fraud Prevention In Your Business

June 17, 2021
Bill Kimball

Notify your bank that the employee who makes the daily bank deposit is not authorized to receive “cash back” from your deposit. Require that your receptionist or someone independent of the accounting department open the mail and log cash receipts received at your office location.

Internal control programs should be monitored and revised on a consistent basis to ensure they are effective and current with technological and other advances. If you do not have an internal control process or fraud prevention program in place, then you should hire a professional with experience in this area. An expert will analyze the company’s policies and procedures, recommend appropriate programs and assist with implementation. Documentation is another internal control that can help reduce fraud. In addition, make sure all checks, purchase orders and invoices are numbered consecutively. Use “for deposit only” stamps on all incoming checks, require two signatures on checks above a specified dollar amount and avoid using a signature stamp.

The smallest businesses were at the greatest risk of occupational fraud and also suffered the greatest monetary losses. Many small business owners do not believe their businesses can or will fall victim to occupational fraud. Due to this belief and budget restrictions, many small businesses do not have proper controls in place, which leaves them vulnerable to would-be fraudsters. Business fraud, however, is not limited to billion-dollar empires, big names and splashy news stories. In fact, business fraud actually occurs much more frequently and more often inside much smaller businesses. Once you have put strategies in place to prevent fraud against your business and assets, make it a regular occurrence to monitor your implementations. By partnering with the Signature Analytics team, we can recommend industry-specific suggestions for your company.

Across the board, rent problems have escalated in February among many groups and sectors, despite the promise of the new PPP. Minorities, women, and small business owners in 15 different industries have reported increased difficulty in paying their rent. While the 2020 survey saw employees purchase gifts, drinks and dinners, one of this year’s respondents admitted to expensing an engagement ring – a notable purchase as we approach Valentine’s Day.

Monthly bank statements should be delivered unopened to the owner, who should review them in detail for irregularities such as unexpected declines in balance, overdrafts and unusually large disbursements. Have supervisors review employee time daily to ensure time worked was reported accurately. Require that the bank obtain your authorization for all electronic fund transfers. Examine all original invoices and receiving documents when signing checks to ensure that the prices are reasonable, that goods were actually received and that the vendor is legitimate.

Business owners and senior management should lead by example and hold every employee accountable for their actions, regardless of position. Small business owners shouldn’t assume the worst about becoming a victim of fraud, but they can consider these strategies as one way to manage risk.


The cost of trying to prevent fraud is less expensive to a business than the cost of the fraud that gets committed. Internal controls are the plans and/or programs implemented to safeguard your company’s assets, ensure the integrity of its accounting records, and deter and detect fraud and theft.

CPAs and Certified Fraud Examiners can provide extensive help in fraud detection and prosecution, if necessary. Credit card fraud is in the headlines so often that some people may have become numbed by the news. But businesses of all sizes, even the smallest home-based endeavor, should start by firmly separating business and personal accounts. Mingling of business funds with personal finances is not only prone to very costly errors, but can expose the individual to lost funds on both sides if the credit card information is breached. Separating accounts also makes tracking business expenses much easier. Businesses should also be wary of who they provide their credit card information to, and should use secure, online bill payment services when possible, eliminating the potential for check fraud or theft.

A severe red flag is customers who supply an overseas delivery address. This is a concern, especially if they do not care about delivery costs. Whilst this might be legitimate, follow up with more questions before making an informed decision. Online business can add an extra layer of security to transactions by asking for Verified by Visa/Mastercard SecureCode authentication. Ensure a company has various methods of contact not limited purely to a mobile contact and/or email address. Visit customers at their premises to establish if they are legitimate.

Keep accurate records of all your assets in the form of inventory/stock control and accounting records. Then monitor what is going in and out of your company, and what billing you’re receiving and giving. Otherwise, employees might not realise the implications or consequences of their actions. One way of communicating a strict anti-fraud policy is by enforcing it from the beginning.

Your Year End Business Housekeeping Checklist

When an employee or supplier substitutes counterfeit or inferior products and/or materials than what was initially agreed. When an employee steals or shares credit card numbers, client information or other PID and sells them to third parties. An employee or customer forging a signature or alters the payee, amount or any other details that cause the cheque to be unauthorised. Complex controls can surely make a positive impact, but most often, starting with the basics can set you ahead of the curve. For a printable PDF of this checklist, click the PDF button at the top of the article. Require that key accounting personnel take a vacation at least annually and that someone perform their job function in the interim to detect possible irregularities.

  • Trusted employees can encounter situations which lead them to compromise their ethics.
  • Using company funds to purchase something for personal use, but records it as a legitimate business purchase in their books.
  • But as we noted above, there are some very specific threats that we are monitoring.
  • It also gives tips on how to prevent these schemes from happening to you.
  • Your clients should create an official code of ethics to demonstrate that fraud won’t be tolerated.

This unfettered access allows them to make unlawful transactions, add false employees to payroll, and steal valuable employee information. Employee fraud is also a rising threat resulting from increased personal financial pressures exacerbated by the pandemic. In fact, 43% of financial institutions expect that employee fraud rates will significantly increase in 2020. Educating employees on fraud and risk management is key to spotting potential threats and reporting suspicious activity. Loyalty sometimes means loyalty, but sometimes it translates to greater risk. The longer an employee was with a company, the more he or she took. Fraudsters who worked with a company for less than five years took $100,000 on average, while employees who had been with a company for longer than five years stole $200,000 on average.

Comments On small Business Fraud Prevention Tips (from Experts)

It is imperative to know your employees and engage them in conversation. It is vital to an organization, large or small, to have a fraud prevention plan in place. The fraud cases studied in the ACFE 2014 Report revealed that the fraudulent activities studied lasted an average of 18 months before being detected. Imagine the type of loss your company could suffer with an employee committing fraud for a year and a half. Luckily, there are ways you can minimize fraud occurrences by implementing different procedures and controls. The high levels of trust and close personal relationships found in many small businesses foster loyalty, but they also can provide opportunities for fraud.

They can also make honest mistakes, which internal controls will detect. Fraud prevention policies and procedures prevent loss due to both intentional fraud and human error. A shocking report from the Association of Certified Fraud Examiners shared that most businesses lose around 5% of annual revenue due to fraud that is committed by managers, employees, executives, and owners. Even if you think that you have a good relationship with every member on your team, you can’t make assumptions that your company is immune from fraud. Smart business owners develop policies and stay up-to-date to ensure they are protecting their livelihood from theft. According to the 2016 ACFE study, the presence of anti-fraud controls correlated with lower fraud losses and quicker detection.

However, there are many steps you can take as a small business to protect your monetary and physical assets. One of the most important investments you can make into your business is knowing how to protect it. That will help you put systems in areas where your business is most susceptible to fraud. As a result, it will reduce the likelihood of that fraud to occur once again. The types of frauds your small business can be exposed to doesn’t differ to a corporate one. However small businesses, especially newly established ones, are generally more susceptible to fraud. Therefore, they need to be aware of the fraud risks that could arise.

It may even involve complaints about lifestyle change that caused the questionable behaviour. Around 80% of all data breaches occur with staff involved in some shape or form, according to the ICO. These breaches can cause significant loss or destruction to your small business. Furthermore, those in the inside of your business are able to know your processes inside and out. That gives them insight into how they could bypass them for financial gain.

Periodically review the payroll and approved vendor list to ensure none have been added without your knowledge. The most common forms of occupational fraud are asset misappropriation , financial statement fraud and corruption . The types of fraud vary somewhat by industry and are illustrated in the ACFE’s interactive chart here. Business News Daily was founded in 2010 as a resource for small business owners at all stages of their entrepreneurial journey.

To learn more about how we can help ensure your business has fraud prevention, contact us for a free consultation. Signature Analytics provides small and mid-sized businesses with the resources of a full finance and accounting team. We utilize a fractional accounting model so clients can effectively segregate accounting duties without having to hire additional full-time accounting staff.