How To Protect Your Private Business Against Fraud
Smaller firms can be highly susceptible to fraud. According to a survey by Price Waterhouse Cooper in 2009, the amount of fraud being perpetrated against small business is growing both in terms of the amount of money lost and the number of instances. Almost 90% of companies surveyed had experieced some type of fraud and also reported related declines in financial performance. More worrisome, over three-quarters reported the fraud was instigated by insiders.
For small and medium sized businesses, the vulnerability to fraud can be compounded because of the informal nature of the business and because there are fewer staff members resulting in less direct oversight and the all-important lack of check's and balances.
It is imperative to set up procedures to protect your business from fraud that can impact your bottom line but also to ensure you have systems in place to deter fraud in the first place. Small business owners should commit to taking control by developing a company-wide ant-fraud policy that does three things: 1) Verifies that anti-fraud work practices are in place and are followed; 2) develop written procedures that dictate work processes in critical areas like accounting and inventory control and 3) develop a system that segregates key responsibilities and creates the protection through checks and balances.
Here are an additional few key ways to deter and detect fraud:
First, introduce an anonymous hotline. Employee tips are the number one way to detect fraud.
Second, introduce regular internal audits and surprise audits. Work processes, inventories and accounting can be altered in advance of scheduled audits, so knowing that a surprise audit could occur increases the level of deterrence.
Third, regularly engage external auditors. This is extra insurance every company should consider.
Fourth, one of the most important steps is creating "the tone at the top". By creating a level of awareness throughout your organization that fraud is not acceptable and if detected, the perpetrators will be prosecuted goes a long way in supporting a culture that is not tolerant of fraud or any other unethical behaviour in the workplace.
Finally, consider getting background checks on your new hires, especially those in accounting. This is a simple and cost-effective tool to assist in ensuring you have the right people working with you.
Ten Ways Small Business Owners Can Prevent/Detect Fraud
- Hire a CPA to examine the books.
- Have a written code of ethics.
- Set a good example.
- Have reasonable expectations.
- Treat employees well.
- Restrict bank account access.
- Perform regular bank reconciliations.
- Adequately secure inventory and supplies.
- Adequately prescreen employee applicants.
- Give employees a way to report fraud.