Employee fraud can cost your business real money — perhaps more than you may realize. A 2016 study of occupational fraud published by the Association of Certified Fraud Examiners found that small businesses accounted for approximately 30% of fraud incidents, with a median loss of $150,000.
Implementing a system of policies and procedures known as internal controls can help keep your business from becoming a statistic. While limited staffing may make it difficult to establish some internal control best practices, you do have options. Here are suggestions for protecting your business from financial loss.
Vet your employees. Fraud prevention begins before an employee starts work. Perform background checks (with authorization from the prospective employee), online searches, and resume verifications.
Segregate and define duties. Assign related financial duties to several employees. For example, a good accounts payable internal control practice is to separate the duty of signing checks from the job of bank statement review and reconciliation. You’ll also want to clearly define which employee is responsible for each task, and limit who has access to your business bank account.
Review reports. A simple scan of payroll reports and vendor payments to ensure you recognize all names can help deter “phantom” employees or fraudulent vendor schemes. Open bank statements yourself, or be the first to review the statement online, and perform or oversee monthly reconciliations.
Restrict credit cards. Limit use of business credit cards and credit lines to authorized purchases only, with a firm policy of allowing no personal use.
Set a good example. As the owner, practice leading by example. Internal control procedures may seem silly when your employees are trusted friends. But your job is to make it clear that internal controls are important in all circumstances.
Do you need help reviewing the financial operations of your business and establishing effective controls? Contact us for suggestions.