Fraud deterrence is essential for all organizations. The bigger the organization, the more the chances of fraud increases. Frauds are as old as human history and can happen to any company or business despite the organizational structure and the number of workers. Small business managers trust their workers more than usual. There may be weak internal controls. Fraud affects finances, image, and morale of the company. All factors decline after a fraudulent case. Most organizations adopt shortcuts for fraud prevention. These tactics only decrease the opportunity of fraud.
Following are some fraud prevention shortcuts:
Recognize your worker:
References and criminal history of employees must be checked before hiring. Know your employee. Notice any change in their lifestyle, behavior, and devotion. Alcohol and drug abuse and involvement in gambling is also an alert. Seasoned employees are often the trusted one but, without monitoring, they may commit fraud. Many people are opportunistic and a lack of internal controls may encourage them to involve themselves in fraudulent activities.
Oversee employees meticulously:
A lack of checks and balances can increase the risk of fraud. Your employee’s activities should be monitored and supervised. Money or cash handling should involve more than one person. If a worker is working for extra hours without supervision and is not going to leave, his behavior needs to be analyzed. Critical risk area staff should be rotated periodically as a tool for fraud prevention. Resistance to change by staff in SOPs of inventory or cash handling is an alert.
Clear segregation of duties and responsibilities of an area is a shortcut way out to avoid fraud.
Motivation and pressure:
Managerial staff, administrators and security supervisors often have the opportunity to visit inventory areas without any supervision so they may commit fraud under any social pressure.
Staff should be motivated regularly to practice and adopt ethical behavior in the workplace. Routine orientations and regular training of staff regarding fraud policies and procedures should also be practiced.
Install computer security measures:
Technology advancements are crucial for decreasing risk of fraud. Installation of security camera and entry codes are an important shortcut to prevent fraud.
Application of passwords and firewalls should be practiced. Passwords and entry codes should be changed regularly. The accessibility of these technologies should be strictly restricted to authorized personnel only.
Practice purchase orders:
A consecutively numbered purchase order should be used to place orders. Purchase orders of those issuing and signing authority should be different. Supplies should match with these purchase orders.
Control cash receipts:
Consecutively pre-numbered transaction slips should be practiced. Sale slips and cash receipts should be matched and done by different people.
Use unannounced audits:
Surprise audits without prior intimation should be done. Following audits should be scheduled: annual and quarterly audits by internal as well as external audit teams of all inventory, transactions and fixed assets.
Trail your business checks:
All business checks should be pre-numbered and duly signed by approval authorities.
Inventory management and security arrangements:
Stock receipt, store possession, and distribution should be assigned to different staff. Similarly, the stocktaking of inventory should be done by separate staff. CCTV cameras should be installed to monitor the movement of staff and inventory. No stock should be kept without written records.
Reconciliation of accounts monthly:
A written policy for cash handling should be established. Staff should be trained to distinguish counterfeit, stolen and bad checks. An independent person should reconcile bank accounts of the company on a monthly basis. All checks should be signed. Financial statements should also be monitored regularly.
Generate fraud reporting system:
Establish a fraud reporting system where anyone can report doubtful actions. All workers should be educated and trained in detection and reporting system. You could also have an anonymous tip box.
Customer returns are vulnerable to fraud. Return receipt and delivery staff should be different.
Written policies and SOPs for all critical areas should be developed and implemented strictly after training of staff.
Complaints by clients provide a clue for the detection of fraud.
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