Small and midsize companies are at great risk and typically experience more fraud than larger companies according to the American Institute of Certified Public Accountants (AICPA). It is estimated that many businesses lose approximately 5% of their annual revenue due to incidents involving fraudulent activities.
According to accounting expert Brian Kelly of Brian T. Kelly, CPA & Associates, LLC, in Carbondale and Honesdale, PA:
“Fraud is an intentional act that can be carried out by one or numerous individuals within an entity. The smaller the entity the greater the risk of fraud due to limited internal controls or qualified personnel. As an owner of a small business, it is imperative to review monthly internal reports, bank statements, payroll reports for any suspicious disbursements or unusual transactions.”
Having an effective fraud prevention program in place is one of the best ways you can minimize fraud in your company. Here are 5 tips to prevent fraud by implementing proactive techniques designed to stop employee fraud.
Tip 1 – Perform Background Checks
One way to help prevent fraud is to start early during the hiring process by always performing accurate background checks. Be sure to check references, current employment, certifications, credit, and licensing for all new hires.
Tip 2 – Segregate Duties
Remember that no one employee should have too much control or power over sensitive information or duties like accounting and accounts payable. Always review payroll checks and never allow the person who receives mail reconcile accounts.
Tip 3 – Require Authorization
Ensure the employees aren’t exceeding their authority by requiring authorization for all important transactions or activities.
Tip 4 – Audit
Have procedures for independent audits including inventory counts and surprise check ups to deter employees from committing fraud and encourage compliance with company policies. You should also provide a means to allow other employees to report fraudulent behavior anonymously.
Tip 5 – Have a Manual
Having an employee manual that outlines both acceptable and unacceptable behavior sets expectations for your employees right from the start. It clarifies the rules and gives your employee an important point of reference.
Follow these tips to minimize fraud in your small business and promote a productive work environment that sets your employees up for success.