No matter the industry or the size of the business, no one is immune to fraud. Unfortunately, small businesses tend to have disproportionately large losses from asset misappropriation. Companies with fewer than 100 employees lose in the vicinity of $155,000 each year due to fraud, according to the Association of Certified Fraud Examiners (ACFE).
According to the magazine Ophthalmology Business, such businesses may be vulnerable to fraud because of their practice of employing friends, family members, or other “trusted individuals.” They may rely on those relationships to keep theft at bay rather than on systematic internal controls.
In reality, it’s usually individuals who have worked for the organization for a decade or more who perpetuate such frauds. That’s because these are the ones who have reached positions of confidence and are often the last ones suspected of the crime.
As a rule, if fraud is going to be committed, it will most likely be from someone in operations, accounting, sales, customer service, purchasing, or upper management doing the perpetrating. This should come as no surprise since this is where most of the opportunity lies.
Raising red flags
Alarm bells should sound that fraud may already be in the works or may be on the verge of occurring when employees hold the reins of their job excessively tightly. Such people are so “dedicated” to the firm that they’re unwilling to even take a few days off. Also, keep an eye on those who have become too chummy with customers or vendors.
You may also want to keep an eye on any unusual changes in employees’ financial situations. Are certain employees becoming obsessed about debt and pinching every penny even though they have been getting steady raises? Or, on the flip side, are they suddenly showing off their new Rolex and going out for expensive dinners that has you wondering if you’re paying them a bit too much, or if they have found a pot of gold somewhere? If so, it could be a good time to take a closer look at the books.
Safeguarding the business
To help safeguard your business from fraudsters, it’s a good idea to put some preventative practices in place. First, have people change roles from time to time where possible so that nobody gets just a little too comfortable handling the funds.
When a new employee comes in, make sure you thoroughly vet him or her. Likewise, when an old one leaves, update any signature cards and system access promptly.
Also, be sure that all employees know that you monitor their actions on a regular basis. Another tactic you can employ is to separate accounting responsibilities so that accounts payables and accounts receivables are actually handled by two different people. This will help ensure that fraudulent invoices don’t get paid.
In addition, you should reconcile your account statements in a timely manner; otherwise, you may be liable for the loss. If you do spot an issue, keep in mind that a bank can take action on things such as counterfeiting, check alterations and forgeries.
In the end, by remaining vigilant and letting employees know that you’re wise to possible fraud temptations, you can prevent it from occurring to begin with – saving everyone a lot of heartache.