Small Business Fraud
Fraud is a potential threat to every company, including small and
midsize entities. The good news is that the risk of fraud can be
managed. The following is a checklist of simple and affordable measures
for small and midsize business owners and managers on managing the risk
of employee fraud, including some technology-based measures that can be
adopted when the threat of fraud is great.
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| Accept the idea that fraud is commonplace and can
happen at any business. |
| Set an appropriate ethical example for employees
to follow, and treat them with respect and fairness, including
fair pay. |
| Ask your employees to identify ways in which
someone could commit fraud at your company and the ways to avoid
it. |
| Develop a code of conduct that explicitly
prohibits employees from committing fraud, conflict of interest
and other illegal acts and ensure all employees, vendors and
customers get copies of it. Consider having key employees
provide annual confirmations of their compliance and have a
clear company policy on time and expense reporting. |
| Adopt a "trust, but verify" code. If you
need only one bookkeeper, conduct a careful background check
before hiring. Take note of employees who appear to live
substantially beyond their means. |
| Verify the credentials of all new vendors before
they are authorized to supply the company. Periodically review
vendors to identify possible improprieties. |
| Make sure all disbursements are properly approved.
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| Protect yourself against check alterations by
adopting electronic transfers for large payments, using direct
deposit for payroll, placing a dollar limit on checks and
implementing up-to-date check security measures. |
| Review original bank statements before your
bookkeeper does. Keep an eye out for unexpected overdrafts or
declines in the cash balance. |
| Make sure bank statements are reconciled
each month and that an expert adviser, such as a CPA, reviews
the bookkeeper's work periodically. |
| If something seems odd, whether it is a
disbursement to an unfamiliar vendor or unexpected costs,
consider the possibility of fraud. |
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Source: Arthur
Andersen's Enterprise Group and National Small Business United.
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