Money Management
FOR
IMMEDIATE RELEASE: October 29, 2007
Don’t Let Mischief Strike Your
Company: Five Steps to Prevent Fraud in your Business
Every year, businesses all over the country lose billions of
dollars to employee fraud. And while the big companies make
the headlines, small- and medium-sized businesses are
equally—and sometimes more—at risk, primarily due to a lack
of awareness or a false sense of security. According to the
North Carolina Association of CPAs, the fraud prevention
tips below offer smart small
business owners steps to protect their business’ financial
assets as well as their reputation.
1. Screen
applicants thoroughly before hiring them
Hiring the right employees is the best way to stop fraud
before it happens. CPAs say that it’s a good idea to perform
background checks on potential employees. You’ll want to
screen the applicant’s criminal history, civil history, and
drivers’ license violations, and verify his/her education,
past employment and references.
Since employees experiencing financial difficulties may be
more prone to committing fraud, think about
requesting a credit check as well. Before performing
background and credit checks, be sure you understand and
comply with any legal requirements for obtaining the
applicant’s consent.
2. Implement
internal controls to reduce fraud risk
Many small businesses depend on one person to process
payments and invoices, make bank deposits, handle petty
cash, and reconcile bank statements. This is asking for
trouble. Your business
should implement a system that spreads and, if
possible, rotates the financial duties of the business among
two or more employees.
Store bank checks in a secure location and
carefully review your bank statement each month, taking
special care to look for checks made out to cash, employees,
or suppliers you don’t know. It’s a good idea to have your
bank mail your company’s statements to your home address, so
you’re sure you receive them before anyone else.
Insist that all employees, especially those with financial
responsibilities, take a mandatory vacation of at least one
week of consecutive days. Fraudulent employees will often
resist
taking a vacation out of fear that whoever
does the job in their absence will uncover the fraudulent
activities.
3. Be a role model
and lead by example
An effective way to prevent fraud in your business is to
create a positive work culture. It is important that the
business owner and senior management serve as role models of
honesty and integrity. If the individuals at the top take a
careless approach toward company policies and procedures,
they are inviting their employees to do the same—or worse.
Set clear standards
from the beginning by implementing
a company-wide written code of conduct, and make it
clear to employees that the company has a zero tolerance
policy for employee theft. To maintain credibility, be sure
to conduct a prompt and thorough investigation of every
incident.
4. Implement an
anonymous theft reporting system
Every company should establish a system that makes it easy
for employees, vendors and customers to anonymously report
suspected fraud activities. Be sure employees understand
what constitutes fraud and that all reports are treated
confidentially and without reprisal.
5. Work with a CPA
Consider hiring a CPA to conduct both regularly scheduled
and surprise audits. Audits can serve as a deterrent because
when
employees are aware that there will be
checks of their areas, they are more likely to stay honest.
A CPA can also help you set up and maintain effective
internal financial controls.
Produced
in cooperation with the AICPA.
©2007 The American Institute of Certified Public Accountants
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