6 Ways to Prevent Small Business Fraud
Small business fraud is a problem you can’t afford to ignore.
Fraud can take many forms: inventory theft, billing or payroll schemes, check tampering, good old-fashioned corruption and so much more. Fraudsters are innovative, too – they made hay of the Paycheck Protection Program (PPP) and Economic Injury Disaster Loans (EIDL), which experts believe were defrauded to the tune of tens of billions of dollars.
But regardless of how it happens, it’s happening at small businesses more often than their larger counterparts – and the consequences are more severe.
The Association of Certified Fraud Examiners’ long-term data shows fraud frequency of 28% among small businesses, versus 22% to 26% for larger firms. Particularly problematic is billing and payroll fraud, which occurs twice as frequently on average.
Getting swindled isn’t just an inconvenience – it can be fatal. The Better Business Bureau says nearly 30% of all business failures are caused by employee theft. Unsurprisingly, that figure is disproportionately made up of small businesses. No wonder: These companies have fewer resources to weather the financial impacts.
All of this makes it clear: Small businesses must take fraud prevention seriously. We have a few tips to help you out with that.
6 Ways to Prevent Small Business Fraud
Frequently Monitor Your Business’s Bank Account
One of the easiest things that any small business owner can do to prevent fraud is keep an eye on the corporate bank accounts on a regular basis. While it’s certainly not a way to catch all types of schemes, you might be able to sniff out things like checks signed over to third parties, or check recipients you’re not familiar with.
Hire Smart
It might be an oversimplification, but good people are less likely to do bad things. When you hire, don’t just rely on the resume and interview – take time to check references, and do background checks. While there’s a greater upfront cost to this, it literally could save your company. (Note: This piece of advice is relevant for businesses of all sizes, but it’s especially important for small businesses given how much ground a handful of employees are likely to cover.)
Have Employees Watch for Fraud
You only have so many hours in the day, so if you’re hiring good people, it’s a smart idea to tap them for your anti-fraud efforts. That starts with educating your employees the various types of fraud, setting up a fraud reporting system, establishing punishments for fraud and continuing to communicate the importance of detecting fraud down the road.
Divvy Up Accounting Tasks
If you have enough staff to make it feasible, consider splitting up accounting tasks across multiple employees. If a sole worker has their hands on every single one of the company’s purse strings, that makes it easier to coordinate financial fraud without anyone noticing. Dividing responsibilities not only gives employees fewer avenues through which to commit fraud, but also increases the chances that their efforts will be detected by another employee.
Do Routine (And Surprise) Audits
If you want to be particularly thorough, you can go two steps farther than monitoring your bank account, as mentioned above. First, conduct routine audits of your financials – a deep dive across all your financials is a much more effective way of uncovering fraud. But secondly, pepper in regular audits with the occasional surprise audit; crafty employees might be able to game an audit schedule, but it’s difficult to cover your tracks ahead of an audit if you don’t know if and when it’s happening.
Take Suspected Fraud Seriously
The single worst thing you can do if you’re presented with evidence of fraud is to be lax about following it up, or ignore it altogether. For one, it demonstrates to a fraudster that they likely can get away with more of the same (or even worse). Not to mention, you’re effectively flushing away all the time and money you spent on establishing anti-fraud measures. So if you receive any evidence of fraud, investigate it in a timely and thorough fashion.
Don’t Let Someone Steal Your Company Into Extinction
Ultimately, the best way to deal with fraud is before it happens. But whether you’re looking to prevent fraud, or dealing with fraud that has already happened, we can help.
McManamon & Co. provides both fraud deterrence and fraud investigation services to small and midsize businesses. We provide fraud risk assessments, where we analyze your operations to identify risk areas so they can be better managed and mitigated. We also provide assistance with the design and implementation of fraud deterrence systems.
And if you’re already facing a fraud or corruption situation, our fraud examiners and forensics accountants can uncover the facts and get to the root of the problem. Don’t delay: Reach out to us at 440.892.8900 or contact us online today.
Tags: fraud, McManamon, small business, small business fraud | Posted in Fraud, McManamon & Co., small business