Post 5 of 5: How to Prevent Fraud In Your Business

In our 4th post on fraud, we covered the opportunities for fraud in a business.

After covering material that is negative in many ways, let’s discuss something positive: How to PREVENT fraud in your business!

Separation of Duties

Separation of duties is a cornerstone concept of accounting. In a small business, this critical separation can be difficult and may even seem impossible, but it’s critical to preventing fraud!

Examples of Separation of duties:

  • The person who picks up the mail is not the same person who posts customer payments or enters vendor invoices.
  • The person who makes the deposit is not the same person who goes to the bank.
  • A separate person verifies new vendors.

What’s the answer, what solutions are available for a small business who needs help with the day to day bookkeeping?

There are three workable solutions to tighten up this environment of opportunity. They help keep the employer involved while maintaining some aspect of control:

  1. Do not give employees the ability to sign checks.
    Remain the only signer on the bank account. Don’t make your employee a signer.
  2. Sign checks only with supporting documentation. Take the time to look at the documentation. place the check and the documentation side by side. At the very least:
    • Ensure that the vendor is legitimate.
    • Determine if the amount of the invoice matches the amount of the check.
    • See if there is a previous balance on the invoice. If so, find out why.
  3. Use a debit or credit card. This is a great option to use instead of checks whenever possible. A common method used to embezzle funds is with the use of a bogus vendor.  This scam is a little more difficult with credit cards. The thief would have to set up credit card processing which would add an additional step.
    • Set up limits on the amount allowed to be charged on any one card daily, monthly, and in any one transaction.
    • Credit card companies can assist you in disputing fraudulent charges.
    • If you choose to go the credit card route and you ARE subjected to fraudulent activity, your cash flow will not be immediately affected. This buys you some time to work through the issues.

Our examples of separation of duties and three basic solutions to shut down the environment of opportunity seem very simple, but most business owners are busy and just do not do these things! Nothing can completely replace the value of owner involvement!

We definitely recommend that once you reach the point where a bookkeeper is involved in your books that you hire an independent, third party to assist with the monthly bookkeeping.  At Dana McGuffin CPA, PLLC, we partner with business owners of small to mid-size businesses to ensure the security of their assets. In this partnership, it is critical that our clients voice any suspicions they have to us so that we can investigate. Call us at 817.488.8939 if you are ready for our help in your business.

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