April 19th, 2022 Taxloopholes.com Advisor
Is your company susceptible to fraud? According to the Association of Certified Fraud Examiners, the answer is yes. Its findings report over $7 billion in total losses due to fraud in 2018 alone. What’s even more interesting is that small businesses with less than 100 employees lost twice as much ($200,000-plus) per fraud attempt than their larger counterparts. Which is likely due to the fact that internal control weaknesses were responsible for nearly half of all fraud attempts.
So, today I want to share one way that you can help prevent fraud from occurring within your own business.
Over the past 25 years, I have worked with thousands of business owners on how to grow and scale their businesses through the use of systems and controls. And one area that we examine closely is how money flows in and out of their businesses.
If you are like many small-business owners, you may have an accountant or a bookkeeper handle your finances. You likely have one person doing receivables and payables, and they may report back to you directly on a regular basis. This method of accounting is ripe for fraud, however. Which is why I recommend always having two unrelated parties involved in any money flow in and out of your business.
The idea behind this financial control concept is pairing two unrelated team members on a given financial job so they can be checks and balances for each other. This does two things. First, it reduces temptation for fraud as both parties know that the other will likely see any bad behavior and report it immediately. Second, it makes it so that two people would both have to collude and keep the secret before any serious theft could happen in those areas.
This means one person opens the mail, lists all checks received on a spreadsheet, and preps these checks for depositing, with a second, unrelated person who double-checks the math and reviews the deposit amounts before it goes to the bank.
This also means one person who sets up the ACH payments for the payables period, and another who goes in and approves the payments to go out.
Not only does this method make it much harder to commit fraud within your business, but it also serves as a good strategic depth exercise. If you have at least two people trained on how to do an ACH payment for example, you will still be able to conduct business if someone is out sick for the day or moves on to another position. Having more than one person trained in a particular area makes training their replacement much easier as well.
Preventing fraud within your company is a big undertaking, but with some strategic systems and controls in place you can make it much more difficult for the fraudsters to take advantage of your business. Be diligent, create checks and balances, and question anything that is the out of the ordinary.