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.

	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.
	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.
Source: Arthur Andersen's Enterprise Group and National Small Business United.