#23 - Fraud Controls: How to Stop People Stealing from Your Business
Feb 12, 2024
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Learn how to prevent fraud in your business with effective fraud controls. Topics include the importance of regular bookkeeping, monitoring invoices, and restricting check-writing permissions. Real-life examples highlight the consequences of tax fraud and the deceptive methods used by scammers in business finances. Practical strategies are shared to safeguard against financial loss and maintain trust with customers.
Regularly review financial records to catch fraud early on.
Maintain personal oversight of business finances to prevent fraud.
Implement stringent fraud controls like unique transaction IDs and automation.
Deep dives
Importance of Clear Communication and Accountability in Business Operations
Maintaining clear communication and accountability in business operations is crucial to prevent fraud. Having strong internal controls such as defining roles clearly and segregating duties between different employees can help in detecting and preventing fraudulent activities. For instance, issuing purchase orders and utilizing procurement management software can create a trail of accountability and prevent fraudulent schemes like inflating invoices or misappropriating cash.
Significance of Regular Reconciliation and Oversight in Financial Management
Regularly reconciling accounts and overseeing financial transactions is vital to identify errors or fraudulent activities. By reconciling bank statements, invoices, and accounts receivable on a monthly basis, discrepancies can be detected early, preventing significant financial losses. Implementing checks and controls such as sending customer statements and monitoring transactions can help in ensuring the accuracy and integrity of financial records.
Role of Personal Oversight and Involvement in Preventing Financial Fraud
Personal oversight and involvement in financial matters, especially during times of vulnerability or distraction, are essential to safeguard against financial fraud. By actively participating in the financial management of the business, business owners can detect irregularities and protect their assets. Utilizing tools like regular financial reports and monitoring incoming and outgoing funds can aid in maintaining a vigilant approach towards preventing fraudulent activities.
Tightening Fraud Controls Through Unique IDs and Tracking
Implementing stringent fraud controls involves tracking unique IDs for various transactions like purchase orders, work orders, invoices, and deposits. Software automation can reconcile these numbers seamlessly, offering real-time fraud prevention. Creating a system that automatically notifies canceled or voided invoices can enhance oversight. By assigning granular controls, such as allowing only business owners to void invoices, businesses can tighten processes, instill accountability, and deter fraudulent activities.
Enhancing Efficiency and Preventing Fraud Through Technology and Controls
Leveraging technology and tight control measures can streamline operations and boost fraud prevention. Implementing internal systems like cameras for monitoring and AI-driven controls can reduce fraud risks significantly. By identifying top performers through efficient systems, businesses can reward and retain high-caliber employees, contributing to a more productive and secure work environment. Strengthening internal processes and tightening controls can lead to a more efficient and transparent business with reduced fraud vulnerabilities.
Hang around a group of small business owners -- folks who have been in the business for a long time -- and you'll find that nearly every one of them has had someone steal from them or commit fraud at one time or another. Small businesses are prime targets for fraud and theft, mainly because they tend to have weak or ineffective fraud controls, if they have any at all! It's imperative for any small business owner to understand common fraud risks and develop some basic processes to ensure they don't happen.
The most common reason people get away with unchecked fraud and theft is because the business owner is simply not paying attention to his accounting. The books aren't reconciled often enough, invoices are not reviewed regularly to ensure they match revenue, and too many people have deposit and check writing permissions for the business. As Scott says, the only other people that should have the ability to write checks for the business, besides you, the owner, are your wife (husband) or your mom.
Having a bookkeeper is great for getting insightful reporting on your business, ensuring your books are done on a regular basis, and your taxes are filed stress-free and on time. But you, the owner, still need to personally review the books on a weekly basis, check the invoices, and maintain a list or database of your contracts, so that you can catch any funny business before it snowballs into a very expensive problem for your business. There's no substitute for being in touch with your business' numbers, even if you have someone else doing the dirty work of categorizing transactions and reconciling bank accounts.
