As the owner of a company and as an employer you have a responsibility to maintain the integrity of your business. This includes being aware of the many types of fraud that can be committed as well as some of the ways to prevent it.
There are multiple types of fraud that can be committed and they can be perpetrated by employees, customers and even vendors. There are too many others to cover in one blog post, but we will cover some of them.
Types of Fraud
Inventory Theft – this could be office supplies/equipment or actual physical inventory that your company sells.
Check Fraud – from writing bad checks to forging a company check to stealing vendor payments.
Credit Card Fraud – from overcharging and undercharging (depending on the scheme) to stealing customers card information to charging personal purchases on a company credit card.
Advertising & Sales Scams – these may not be perpetrated by employees but either way the company pays the price.
The good news is there are many different ways to prevent fraud from hurting your business. One of them is just being aware of the financial details of your business will help prevent fraud to begin with. If you have an overall idea of your total sales and expenses, it will make it easier for you to notice if things start changing. Then you have the opportunity to fix it quickly. Another way are Internal Controls.
Internal Controls cover the way money and sensitive information flows through your company.
If it’s a larger company, it is usually easier because you can start with Separation of Duties.
For example, Accounts receivable – One person opens the mail. Another person is responsible for posting the payments and preparing the deposit. And a different person is responsible for getting the deposit to the bank.
Use the same concept for Accounts Payable – one opens the bills; one prepares the payments and a final person checks the payments for accuracy, signs them, and sends them out.
Again, use the concept for Inventory & Supplies – One person orders, another receives and yet another person distributes or stocks the merchandise.
For a very small company, this is more difficult and makes hiring the right person extremely important. Be sure to check references, not just one, but all of them. Utilize the variety of background check services that are available today, including credit checks, fingerprinting, drug testing, even looking into Facebook accounts. Be sure to check with your state (or your HR manager) for laws and regulations regarding consent for gathering this information.
Another Internal Control is to have the bank statements and credit card statements sent to your home address instead of the office. Open them, shuffle the contents even if you don’t have time to look them over. That way any employee who works with the statements will know that someone else is looking at them, but won’t know how closely. Use the home address for all Tax correspondence, both federal and state.
Another Internal Control is to conduct regular company audits for fraud. This should be done by someone who does not normally handle the records that are being audited. Things to check are expense reports, payroll records, purchasing records, sales records, inventory, accounts receivable and petty cash records. Another very important item to look at are customer complaints. Very often those are the first tip that something is not being handled properly in your organization.
