October 4, 2020
Small businesses that don’t implement proper procedures to prevent fraud can potentially find themselves in trouble. Though everyone is at risk for fraud, small businesses can be at a higher risk due to lack of precautions and safeguards. With these few steps you can keep your small business safe.
One of the first mistakes small business owners make is not having a separate business bank account. It is much more difficult to spot fraudulent charges or unexplained patterns of charges in statements with both personal and business expenses mixed together. Also, if one account is compromised, there is no safeguard to fall back on. Splitting accounts protects your personal finances and your business account. You can easily identify fraudulent expenses when all transactions on statements are business related. Creating a separate bank account is one of the first things you should do when starting a business. Talk to your bank about setting one up if you haven’t already.
All businesses try to hire employees that they trust, but that trust can only go so far. Often those who embezzle or steal from small businesses are those a business owner would least expect. Run background and credit checks on all employees before hiring them. Take it a step further by making sure to take good care of your employees. Overworked and under appreciated employees are those with the highest risk of committing fraud. Curating a culture of trust and encouragement goes a long way.
Don’t leave finances up to one person in your business. It is much easier to steal from a company when there is no supervision or accountability. Require supervisors to sign off on records or share duties with an outside accounting firm. This reduces the possibility of employees falsifying financial statements. Minimize temptation and create a culture of accountability by splitting up the work.
It’s also important to do regular audits of financial records. On average, embezzlement in a company goes unreported or unnoticed for 18 months. A lot of damage can happen to a small company over such a long period of time. Put monthly or quarterly financial audits in place. If you don’t have time to do it on your own, identify an accountant or Certified Fraud Examiner who can assist. On top of scheduled audits, you should also do surprise audits. It’s easy to try and cover up falsified records when there is time to prepare for an audit. The fear of being discovered can deter employees from trying to lie on important documents.
These are only a few ways to minimize the opportunity for fraud in small businesses. Consider fraud insurance, installing monitoring systems, and training your employees. Taking the necessary steps to prevent fraud far outweighs the cost of dealing with the aftermath. Don’t let your business stay exposed. Learn more by visiting the Association of Certified Fraud Examiners website. Keep your business safe!