I have had the misfortune on several occasions to speak with business owners who were victims of fraud. Fraud can destroy your business by the way of ruined relationships and cash flow problems that force you into bankruptcy.
Regardless of the size of your business, you don’t have to spend a lot of time and money to reduce your exposure to fraud. Simply put, set boundaries and hold the people who work for you (or otherwise represent you) accountable. Some see these accountability measures as an accusation. (You don’t trust me! or But we’re all friends!) I call them protection. In the words of Ronald Reagan, “trust but verify.” Accounting is about financial responsibility and transparency.
Here are some simple tips you can implement now to fix your accounting system while making it more productive and less susceptible to fraud:
You should open the mail, not your employees. That way, you can see past due notices or tax notices for things you thought are paid. Verify checks received in the mail are going into your bank account.
If you allow employees (or contractors) to pay bills on your behalf, set limits on how much they can spend. Monitor the bank account and question transactions you don’t recognize.
No one besides the owner and officers of the organization should be permitted to sign contracts, financial applications, or any legally binding document.
Review your credit report several times a year, watching for bank or credit card accounts you didn’t open. That could indicate identity theft or fraud.
Review your financial statements regularly. Ask questions and get answers. Don’t be put off by emotional outbursts, overly technical answers, or other delay tactics.
Require employees to take the vacation days they earned. You can learn a lot by filling in while they are out of the office.
There’s a great e-book, “Diary of a Bad Bookkeeper,” that in the span of an hour will take you through a fictionalized account of a small business that had an employee embezzle thousands of dollars. Make no mistake. What you read in this book can and does happen more often than you think.
If you want help setting up accountability rules for your business, please get in touch. I’d like to help you protect your business.
