In a small business accounting, unintentional mistakes take place and so does the intentional ones. Both can be prevented with the correct measures, procedures and proper lookout in the bookkeeping activities of the company
Most of the times, fraud happens in small-scale businesses, due to their lack of controls and inefficiency to see it coming. According to a 2012 study, 31% of companies with less than 100 employees will go through several kinds of embezzlements or check fraud.
The study further discovered the following facts:- an Average small business loss to embezzlement was $147,000, furthermore, 20% of those losses surpassed $1,000,000!
- 49% of the unfortunate companies do not retrieve any of the embezzlement losses.
- Almost all fraud perpetrators are first-time offenders with no criminal record and clean work histories. Roughly 84% had never been charged for a criminal activity or fired by former employers.
- On an average fraud lasted around a year and a half before being noticed.
Prevent it from happening in the first place.
Fraud and embezzlement only take place, when provided opportunity. In absence of the proper procedures in work to forestall it, your business is vulnerable. It is important to set up a structure for protection. Regardless of the scale of your company, here are the seven primal steps you should take to prevent employee fraud and embezzlement:
1. Timely Financial Assessments
A proprietor has a spontaneous knowledge of the business that can point out fraudulent behavior. They just need to manage their schedule for a monthly assessment, ask questions and go through monthly expenses. Also, question the explanations that do not make sense to your understanding of the business.
2. Divide the Accounting Duties
This could be quite tricky in a business where a single person manages the books, but there are some steps that can help. As much as possible, split complementary bookkeeping duties between two or more. If you are a small-scale enterprise, it may be essential to use non-finance personnel (a receptionist) for receiving, opening and categorizing mail. This could disclose nonpayment notices and guarantee that client checks are decently accepted and recorded.
3. Encourage Vacation Period
Requiring that employees with delicate jobs take a vacation can make their job a lot easier. If any mistakes, intended or unintended takes place, the ‘temp-person’ has the power to sniff out where processes are not being followed.
4. Obligate the usage of Purchase Orders
Using purchase orders requiring an approval signature from you will help in getting rid of unneeded buying of materials. It will also help to prohibit fake, fictitious and exaggerated payments to suppliers.
5. Make sure that you are the last person to touch the cheques
Forging and tampering of cheques are among the most common forms of fraud. When you sign your cheques by hand, don’t forward them to someone else for distribution. Mail them yourself, and in the case of salary cheques, take it to the bank yourself. As well, when signing merchant cheques, make sure the related bill being paid is attached for assessment.
6. Thoroughly look through Payroll
In larger companies with a higher rate of turnover, payroll seems to be a simple target for embezzlers. Make sure that are well aware of your staff and know exactly who is currently employed and who has left the company. You may find that a previous employee is still being salaried.
7. Set up a reporting channel
Set up a reporting channel for your employees to address their issues, so that they can share any grievances before they resort to fraud and embezzlement. Also, ask employees to look out for unusual behavior by colleagues. Encourage your employees to come forward, if they witness any kind of unusual behavior from their colleagues. Employees often fear persecution for voicing their concerns, and wouldn’t want to rat out their colleagues. Implement Your Safe Hub in your organization for reporting purposes, a special communication channel that protects such employees with the power of anonymity.
Signup for Your Safe Hub now and protect yourself and your valuable employees.