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Small businesses are vulnerable to internal fraud or theft. The human tendency is to fall prey to our desires that perhaps encourage most of us to indulge in fraudulent activities in an organizational setup. Hiring top-quality and honest employees have become the need for businesses.  Small business setups have less control over core business operations and finances. Check out America's Best Bookkeepers

How Is Big Of A Problem Internal Fraud?

Regardless of the size and scale of a business, fraud is, by far, the most common problem for businesses as they become increasingly digitalized. Employee theft or fraud has long existed in one form or another, which makes it clear that it is not a thing of today. However, the problem is getting worse day by day, since employees have become more clever than ever as they use sneaky ways to steal from their employers. There is no denying the fact that internal fraud can lead to a negative impact on the name and reputation of the brand, which means it can tarnish the brand value of the company and can also have serious financial implications. So, protecting your business from internal fraud has become the need of the hour and absolutely necessary for maximizing revenues and profits for the company.

Types of Fraud

Looking at the bigger picture, there are two types of fraud; internal and external, but internal fraud is much more damaging than external. Why? Because if employees within the organization are against the company’s growth, expansion, and hence success, then what else you can expect from external parties or someone outside of the organization. Check out America's Best Bookkeepers

What is Included in an Internal Fraud

From the misuse of credit cards to the theft of financial data to wrongful claims of expenses, staff use sneaky ways to steal from the company. The thing is that employees are not that loyal to the company as they used to be. It has become more of a money-oriented society rather than showing loyalty towards a company, which encourages employees holding key positions such as accounting or business manager to steal from the company.

What Are The Warning Signs Of Internal Fraud?

Internal fraud can be controlled with regular reference checks and establish more control over bookkeeping and accounting activities. According to a study, employees start to steal from the company when they are not acknowledged and recognized according to what they deserve. So, the chances of internal fraud increases when you underestimate or undervalue your employees, especially those who have to manage your accounts and finances. Other reasons include debt or greed, financial pressure, and emergencies, boredom, or simply availing the opportunity at hand to steal from the company. Check out America's Best Bookkeepers

How to prevent internal fraud?

Know Your Employees

It is important to have a staff that you can trust with sensitive information about the business. Before hiring employees, make sure to verify their personal information and track record from the previous organization they might be working for. So, hire only those employees who have the potential to be an excellent resource for your company.

Know Your Assets

An employer must monitor and keep track of the firm’s assets or possessions for preventing internal fraud. Employees who usually intend to steal from you know about what you care about and what you typically monitor. So, the things that are kept away from your eyes usually get stolen with a well-laid strategy and thought. So, you must know exactly about your tangible assets as well as sensitive data (financial records, accounts, and bank statements) or intellectual property.

Introduce a Reliable Accounting System

By keeping an advanced accounting system in place, you can expect to decrease potential threats and dangers associated with accounting and finances. It is ideal to get a custom accounting system tailored to your business needs and specifications for accurate maintenance of cash flow. This way, you can prevent internal fraud posing a threat to your business.

Check out America's Best Bookkeepers About Complete Controller® – America’s Bookkeeping Experts Complete Controller is the Nation’s Leader in virtual bookkeeping, providing service to businesses and households alike. Utilizing Complete Controller’s technology, clients gain access to a cloud-hosted desktop where their entire team and tax accountant may access the QuickBooks™️ file, critical financial documents, and back-office tools in an efficient and secure environment. Complete Controller’s team of certified US-based accounting professionals provide bookkeeping, record storage, performance reporting, and controller services including training, cash-flow management, budgeting and forecasting, process and controls advisement, and bill-pay. With flat-rate service plans, Complete Controller is the most cost-effective expert accounting solution for business, family-office, trusts, and households of any size or complexity. Check out America's Best Bookkeepers
internal fraud prevention - Complete Controller

Internal fraud can happen to anyone; no business is immune to it. Companies in the US lose over $500 million annually due to internal fraud. Here are some signs of internal fraud and responses.

 

Unjustified transactions

Any unexplained and unjustified changes in bookkeeping records are a definite warning sign of internal fraud. If there is a decrease in revenue despite continuous payments from the business bank account or if there are various pending payments for long periods without any justified reason, then there is most likely something suspicious happening. Also, if there is an unexplained increase in expenses and a sudden decrease in profits, it means that money is draining out of the company to a place where it is not supposed to go. Check out America's Best Bookkeepers

The over efficient workaholics

An accountant who is a fraudster will go to any extent to hide his or her crime. They often want to work off-hours when everyone has gone home. Another sign is that they refuse to go on leave or use any vacation time. They often try to take work home. All of these activities are red flags and need to be addressed. Keep an eye on such workaholics. Unfortunately, there may be an underlying reason for working such odd and extreme hours.

Unexplained satisfaction

Fraudsters try to hide their working documents and processes from managers and others. If any manager or other employee tries to get involved in their work, they become offended. They give unsatisfactory explanations and answers on any fault.

They are overprotective. They work alone and don’t like any involvement or interference. Records maintained by them become inaccessible and untouchable for others. When asked questions, they become strangely defensive. They know that the records will expose their crime, and their answers will be suspicious and unrealistic. Check out America's Best Bookkeepers

Financial stress

If an accountant is facing any financial stress in their life, there have been cases when they plan internal fraud to fulfill their needs. Any unexpected financial loss such as divorce, mortgage, or debt acts as the trigger for internal fraud. Know your employee by taking time for small discussions with them about their current situation. By doing this, you can detect any sudden change in their behavior and activities.

How to respond to internal fraud?

A business owner should know how to respond to internal fraud. Whether the one committing the fraud should go through an internal investigation or be handed over to law enforcement should be a decision that you are prepared to make.

A forensic accountant should be consulted for an expert opinion.  They will investigate and interpret your financial information. They will analyze the amount of loss due to fraud, collect all shreds of evidence, preserve them, and prepare a summary of the lawsuit. They will suggest a policy to prevent fraud in the future.

Termination is the minimum consequence of internal fraud cases. Along with termination, other penalties enforced by a lawsuit are necessary to make it an example that fraud will not be tolerated in your company. Check out America's Best Bookkeepers

How to investigate

An internal investigation should be exhibited in such a way that your employees, partners, public, and donors trust you and your investigation. No question on the credibility of your investigation should be raised. Hire experienced fraud investigators to ensure that your investigations are handled according to law and be sure that there is no violation of legalities.

A prompt decision needs to be made by the business owner, internal audit, board of directors, and forensic accountant alone or in combination. The decision-making authorities should address the size of the fraud, target of the investigation, how to recover the loss and other risk factors.

Interview all of the parties, i. e. vendors, customers, and employees. Review all relevant records. Preserve the evidence as early as possible because that documentary evidence is key for investigations. Forensic accountant and IT personnel should be hired to do investigations in the best way to ensure that you handle it thoroughly.

Conclusion

Internal fraud should be investigated in detail to produce evidence for legal prosecution.

Check out America's Best Bookkeepers About Complete Controller® – America’s Bookkeeping Experts Complete Controller is the Nation’s Leader in virtual bookkeeping, providing service to businesses and households alike. Utilizing Complete Controller’s technology, clients gain access to a cloud-hosted desktop where their entire team and tax accountant may access the QuickBooks™️ file, critical financial documents, and back-office tools in an efficient and secure environment. Complete Controller’s team of certified US-based accounting professionals provide bookkeeping, record storage, performance reporting, and controller services including training, cash-flow management, budgeting and forecasting, process and controls advisement, and bill-pay. With flat-rate service plans, Complete Controller is the most cost-effective expert accounting solution for business, family-office, trusts, and households of any size or complexity. Check out America's Best Bookkeepers