7 Ways Small Businesses Can Deter Fraud
Small and midsize businesses are unsurprisingly more susceptible to fraud than their larger, resource-heavier brethren. A 2018 report from the Association of Certified Fraud Examiners showed that the median loss to fraud for companies with 100 employees or more was about $104,000. For companies with fewer than 100 workers, it was nearly double that, at $200,000.
It makes sense, for numerous reasons.
Small business’s employees often have to wear many hats, and do the jobs of multiple people. They’re also likelier to have access to larger amounts of sensitive information than if they were siloed at a larger company.
And like many other small business issues, resources are an issue. Smaller companies often don’t have the spare cash to implement complex cybersecurity systems, and owners don’t have enough hours in the day to conduct oversight.
The consequences of falling victim to fraud are dire – indeed, they can be a death sentence. The following are a few ways your small business can effectively deter fraud.
7 Small Business Fraud Prevention Measures
- Hire the Right Employees: There’s no sure-fire way to detect every last would-be fraudster, if only because sometimes corporate theft is bred from necessity that develops sometime after a person is hired. But you can include background and credit checks in your new-hire paperwork, especially for any employees you expect to handle cash, financial data or any sort of sensitive info.
- Set Expectations Early: Something you can do as soon as you’ve hired an employee is to make it clear that the company is looking out for fraud and will punish it severely. Workers may be more likely to try their hand if they think your business isn’t paying attention. But if you start mentioning anti-fraud policies as soon as they start onboarding, then reinforce it with occasional memos/emails, they’ll quickly get the hint.
- Set Internal Controls: Internal controls admittedly are more difficult to establish with just two or three employees, but it will get easier as your staff swells. Among the controls you can set are requiring multiple signatories on things such as checks and expense reimbursements, limiting access to data based on an employee’s function, and mandating regular audits to make sure your finances are indeed above board.
- Random Audits: Regular audits serve more purposes than fraud prevention – they can help ensure the sheer accuracy of your books, which is vital in understanding where your company is financially – after all, you don’t want to find out too late that your net income is actually a net loss because someone forgot to carry a 1. But someone who really wants to commit fraud can take advantage of a set schedule; surprise audits exist primarily to determine whether you’ve actually been swindled … as well as dissuade people who might consider committing some sort of fraud in the future.
- Keep an Eye Out for Fake Invoices: Pity the poor scammer who was put in charge of putting together and sending fake invoices to local businesses. But doubly pity the poor overworked small business owner who lets one of these legitimate-looking scams through. They often employ high-pressure tactics to convince accounting to rush a payment through. Make sure accounting team is trained on standard invoicing practices, and try to build a system that allows accounting to check invoices against existing/fulfilled orders.
- Everyone Should Take Vacation Time: One of the most contrarian warning signs of a potential fraudster is a worker who never, ever takes vacation. Yes, there are plenty of honest hard-workers out there, but someone committing fraud will try to avoid taking time off, in the event that someone assigned to their duties notices something isn’t quite right. Besides, employees (and managers) should be encouraged to take vacation anyway: it’s good for the brain, it’s good for the heart, and it keeps everyone from getting burned out.
- Seek Outside Help: All of the steps above are enormous steps toward preventing fraud – and yet, there are so many more areas to cover. Opportunities for fraud are all around, which is why you may want to talk to McManamon & Co. about our fraud and forensics services. While we monitor every employee within your organization, we can do a fraud risk assessment to identify areas of weakness, and help you set up fraud deterrence systems.
Find out how to deter fraud and keep your small business safe against a wide range of threats. Give us a call at 440.892.9088 or contact us online today.
Tags: accounting, fraud, McManamon, small business | Posted in accounting, Fraud, McManamon & Co., small business