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Fraud Awareness and Prevention in Small Businesses

Updated: 1 day ago

Small businesses are more at risk for fraud than big corporations. Our Vice President of Finance, Sandy Marshall has some tips for identifying and preventing fraud in your business.

Fraud Awareness and Prevention in Small Businesses

Most Common Types of Fraud

See below the types of fraud a business owner should look out for.

  • Asset Misappropriation (most often)

    • Embezzlement: theft or misappropriation of funds placed in one's trust or belonging to one's employer.

    • Larceny: theft of personal property

  • Check tampering

  • Paying bills with company funds

  • Transferring cash into personal accounts

Warning Signs of Employee Fraud

If an employee were to be embezzling company funds, there are signs to proactively search for. The employee may be living beyond means or have had a substantial lifestyle change. The employee is possessive of work records, reluctant to share tasks, and acting irritable and defensive. This employee does not want to take off or go on vacation. You may sense the employee is abusing substances. These are all clues that should be considered in relation to employee fraud.

Tools for Identifying Fraud

There are many ways to identify fraud. Look for journal entries in accounts where it does not make sense, even dollar amount adjustments. Take the time to compare year-to-year accounts for changes and then analyze data in Excel and Tableau. Hire a temporary worker to investigate after hours for any fraud speculation. Conduct a payroll audit where someone outside the payroll department checks the identity of each person on the payroll.

Fraud Prevention

These are some suggestions to help prevent fraud in a small business. Strengthen internal controls and try to segregate duties, for example: have one person open mail and a different person make deposits. Banks records are available electronically, utilize them in this format instead of physical copies. For all Automated Clearing House (ACH) transactions, require two approvals: one financial person and one non-financial person. Have open-book financials with your leadership team. This way you have more eyes looking for fraud and suspicious activity. Implement mandatory vacations for all employees. Send out letters of audit to vendors and customers to compare their records to your company’s. With all this being said, no one can prevent collusion. Be aware of the behavior and try to catch collusion as soon as possible.

Communicate Fraud Prevention Down the Chain of Command

Have frequent fraud training with employees. Bring awareness of all types of fraud and the warning signs of them. Emphasize that if they see something, say something. Set clear expectations of the consequence that comes with fraud. Also, company culture plays a big role in this as well. Make sure you are hiring employees that fit your company culture. Ask the right questions during interviews and be picky! If you have great leaders that embody the core values of the company, they will be able to fuel their team with the same energy and create a trustworthy relationship.

Contact Us

Sandy Marshall, our VP of Finance, is very knowledgeable about Fraud Prevention. If you would like to learn more about this topic, please schedule a Lunch N Learn with us. You can also contact Sandy if you have any questions. While you are here on our website, check out what we do!

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