Studies show an estimate of 33% of companies experiencing growing fraud every year. Undetected internal troubles like embezzlement and asset misappropriation can leave your enterprise open to fraudulent monetary reporting, triggering its intervention and sales loss.
Prevention is important to decrease this loss that small and mid-sized businesses are more vulnerable to. Every firm should have a plan in place as blocking fraud is a lot simpler than recovering your losses.
There are three types of business frauds:
- asset misappropriation
- corruption
- financial statement fraud
How to prevent these frauds?
- Know your employees
Fraudsters show traits which often indicate their desire to commit fraud. Listening and observing employees helps you to identify fraud danger. Management should know their employees and take time to get to understand them. Often, an attitude change can provide you with a clue. It is best to know your employees, interact with them, and make them feel appreciated or this can lead them to engage in fraud as a way of revenge.
- Know your business partners
Just like your employees, know your business partners, and keep a record of background information like their physical address, alternate contact methods and persons, and references.
- Set Up Reporting System or train your staff
Your employees must know about the fraud risk policy including its consequences. Most fraud (over 40%) is detected due to a tip that comes from honest employees or other sources of the firm. Many employees are uncertain to file incidents to their employers, so consider setting up a nameless reporting system. This way, employees can reveal fraudulent schemes confidently without worrying about their identity being revealed.
- Monitor vacation balances
You think employees who have not taken a day off in years are dependable employees, but this could also be a sign that they have something to cover and are concerned that someone will discover their fraud if they had been out of the office for a while. It is also a good concept to rotate employees to different jobs within the firm.
- Keep accounting segregated
Most small to mid-sized companies have one person handling all the bookkeeping functions like client receivables, processing client payments, paying invoices, managing petty cash, and recording, etc. But this can be a recipe for a disaster as it makes fraud go unnoticed. Instead, have at least two employees check cash and accounting functions separately, or have an accountancy firm like Finchley Business Services, take care of your accounts with transparency and fairness.
- Audit books on a regular basis
Sensitive areas like cash, refunds, product returns, inventory management, and accounting functions should be regularly audited to detect fraud.
- Maintain control
You can easily trust anybody but give access to financial account data, inventory access, establishing reimbursements or overtime, checks, and other accounting or payroll functions, and performing an overview of audit logs to just anybody. Restrict this access and maintain control to prevent fraud in these areas.
- Protect payment information
To prevent credit card fraud, separate your business and personal accounts even if your business is small. Using your personal account for business transactions can not only cause costly errors but can also breach credit card information.
- Get online banking
With online banking, it is so much easier to view and keep track of all account activity and statements.
- Get help from an expert
If you have tried everything but the numbers are still not adding up, get expert help or advice by hiring a professional accountancy firm to come in and audit your books, control processes, and perform a more extensive review.
It is far important for a firm, huge or small, to have a fraud prevention plan. Imagine the loss your firm would suffer if an inside employee kept on committing fraud for years without you having any idea. Luckily, there are ways you could limit fraud by means of enforcing different processes and controls.
