All types of businesses are vulnerable to fraud. There are three types of fraud likely to occur in your business; theft, asset misuse, and financial statement fraud. Theft can be directly or indirectly taking cash and making extreme expenses. Asset fraud is the taking of the business property by the employees. Middle size and small businesses are more likely to fall victim to fraud because most business owners have employees as friends and even, in other cases, as relatives. Also, you will find that in most small businesses, an employee is assigned many tasks across the organization. The close relationship between the staff makes them not scrutinize less or have no expertise in financial matters. As a business owner, you need to detect fraud and stop it as fast as possible. Let us look at some factors that can prevent fraud from taking place in your business.
Know your employees
Every business aims at hiring honest employees. All employees should undergo a background check, especially those working in the finance department or handling cash from customers. You should find out if they have any financial obligations, such as a loan that they are repaying. Most of the time, you will find that those who commit fraud are those employees who are the most trusted in the business. They may be going through financial challenges that will tempt them to steal from the business.
Audit the books regularly
It is a routine for a business to have the accounting books audited in cash, inventory management, accounting functions, and refunds. Having random auditing would be of help in detecting a high-risk fraud. It is easy to get those committing fraud in the act when no one is aware.
Distribute accounting duties
Most small businesses have one person who handles all the cash transactions. It is hard for you to notice any fraud in such a case. To prevent fraud, a business should have a minimum of two people handling money. You can also keep accounting and the handling of cash separate.
Implement internal controls
Internal controls are the programs you have put in place to protect the business assets, detect fraud, and ensure that the accounting records are full of integrity. Distribution of duties is a basic factor of internal control as fraud is less likely to occur.
Documentation is another method of internal control that can help reduce fraud cases. It would work out best if you made it a habit of going through all the documentation of receipts, cheques, and invoices for any verification needed. Be alert when it comes to a new vendor, as that could be a setup to embezzle funds and avoid using a signature stamp.
Live the corporate culture
A working environment that is conducive and is full of positivity can help in the prevention of fraud. An open-door policy where employees have the freedom to communicate with the management is also another great way of preventing fraud. The business policies should be written for every employee to follow. Lastly, employers should lead by example by making sure that every employee is held accountable for anything they do regardless of the position they hold.
Insist that all employees take the vacation time allocated
You may find that some of your employees never miss a day of work or never take vacations. To you, they may seem hardworking and loyal, but in reality, they could be undertaking some fraudulent activities, and they are afraid that when they leave for a vacation, they will be exposed. The employees knowing that they have to take a vacation every year is enough to reduce the chances of fraud taking place.
Know your customers well enough
Some customers can decide to use stolen credit cards, write bad cheques or even return an item not purchased from your business. Always check on that to protect your business.
Open and review bank statements yourself
You can have bank statements mailed to your home or posted to an office box. Be the first one to review the statements even before your keeper does. Look out for missing cheques, Cheques written by people you are not familiar with, and those cheques that are out of order.
Most fraud cases are usually discovered through third parties or whistle-blowers. Having a system in your business that enables the employees to report what they come across anonymously will greatly help reduce fraud cases in your business.
Secure and protect your business property
You can have security systems installed on your business premises to keep the property safe. No one would steal any property in the business environment for fear of being watched.
Prevention is better than cure. Endeavor to detect fraud early before it becomes an issue affecting your business in a way that is not easily recoverable. What you will incur while trying to prevent fraud from taking place is less costly than what you could have incurred if the fraud took place.