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Fraud nowadays is more common than ever. Small businesses are in far more danger than larger ones. Many organizations have made policies, procedures, and documents to prevent and detect fraud. By adopting effective fraud prevention strategies, the risk of fraud can be reduced. The keys to a success story to prevent fraud are strict implementation of all written policies, making all positions accountable and answerable for their actions.

Internal controls of the organization should focus on preventive fraudulent cases. Understanding of the potential fraudsters’ mindsets is important while developing anti-fraud policies. The best practices to prevent fraud are discussed below:

Fraud prevention through a Board of directors

Many organizations have developed best practices, an analytical approach to safeguard their business and have attained revenue growth by preventing loss related to fraud. However, very few organizations use a board of directors to translate this into a success story.

Here are a few roles that a BOD can play to prevent fraud.

  • Hiring a new CEO
  • Resignation of four directors and hiring of three new
  • Hiring new member for investigating
  • Education and certification of all employees
  • Refining internal controls and overhauling code of conduct

Board members should be independent and “yes men” so that they can be effective enough to question management about reporting and decision-making processes and procedures.

Employee background and behavior

While hiring employees who are directly involved in cash handling, inventory management and have accessibility to sensitive customers, always check his or her background history, employment history, legal history and code of conduct.

Provide employee space and flexibility to share his or her views and problems with you so that you can have a clue of their personality and any behavioral changes can be easily detected. In some stressful domestic problems, many honest employees can lean towards fraud, especially if organization policies are lenient and flexible against violations and misconduct.

Keep an eye on your employees, develop anti-fraud tactics and educate employees about dangers, preventive measures and also provide them with practical advice to prevent fraud. Make them vigilant and inspire them to report any threat to organizational assets and information.

Keep detailed records

Record keeping of all transactions, inventory and in & out is an integral part of any fraud prevention solution program. Fraudsters try to damage receipts or make fake inventory and transaction reports. Complete and detailed record keeping systems should exist. This system should be free of loose holes. What cash is coming in and what is going out should be recorded and payment records should be kept. An accurate financial statement is an important part of internal controls.

Solid, detailed records of all supplies and distributions of inventory should be maintained. Purchase orders should match GRNS. No inventory should be kept without paper works. The record of donations and samples should also be maintained. Random and surprise audit of inventory should be done periodically so that inventory managers couldn’t find time to reconcile and present false inventory reports.

Back up data files

There should be an effective backup system for data. There is not a particular regulation for maintaining backup data as it is to be determined by the transaction volume. This backup data stored in off-site is used to identify fraud.

Other safeguards and checkups for fraud prevention

Other important safeguards used for fraud prevention include: Hire a team of certified fraud examiners. Use CCTV cameras. Restrict access to offices, registers, cabinets and storage areas. Use passwords and firewalls for computers. Listen to others i.e. contractors, vendors, and customers. They provide a clue and indicators of fraudulent cases.

Conclusion

Fraud in business may lead to loss of your business to the extent that it may not be able to recover. But, by adopting a few simple preventative strategies, you can turn your business into the perfect success story. Check out America's Best Bookkeepers

About Complete Controller® – America’s Bookkeeping Experts Complete Controller is the Nation’s Leader in virtual accounting, providing services 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 and critical financial documents in an efficient and secure environment. Complete Controller’s team of  US based accounting professionals are certified QuickBooksTMProAdvisor’s providing bookkeeping and controller services including training, full or partial-service bookkeeping, cash-flow management, budgeting and forecasting, vendor and receivables management, process and controls advisement, and customized reporting. Offering flat rate pricing, Complete Controller is the most cost effective expert accounting solution for business, family office, trusts, and households of any size or complexity.

fraud prevention - Complete Controller

Fraud impacts the standing of a company. It leads to financial loss and a load of legal fees. Companies must have a proactive approach to the solution for fraud prevention. Many factors are important for fraud risk management, but organization culture, strong internal controls, and behavior towards fraud are the main key points. Key solutions for effective fraud prevention are discussed below:

Develop a clear fraud policy:

The first step is the development of a clear and well-understood policy to prevent, detect, and penalize fraudulent behavior. This policy clearly describes the types of frauds and action taken. Check out America's Best Bookkeepers

Education and training:

Educate employees of your company’s fraud policy. Initial orientation and periodic training of your anti-fraud policy should be scheduled for new joiners and seasoned staff—train staff for detecting and reporting suspicious happenings.

Hire an asset:

Your front-line fighters against fraud are your employees, so screen rigorously before hiring.

Discrimination of duties and fixing responsibilities:

Segregation of duties is an integral part of internal controls. There should be clear segregation and authorization among the one who generates requisition, approval authority, and issuance authority. All critical documents, receipts, and contracts should be signed by more than one person of different positions. One single person should not have complete control of an area or activity. Multi-level persons should be involved as an approach to solutions to fraud prevention. Every worker should be accountable and responsible for his/her actions.

Surprise stocktaking:

Surprise and random stocktaking of financial transactions, fixed assets, and inventory, along with annual and quarterly audits, are an integral part of strong internal controls. Internal and external auditors identify the risk factors leading to fraud and point out the violation of procedures, which may result in fraud. The weakness of internal controls provides a favorable environment for fraudsters to commit wrongdoings. Check out America's Best Bookkeepers

Secure inventory and cash:

Inventory and finance area personnel are hired to manage fixed and non-fixed inventory and to handle cash transactions. Rigorous screening and homework are needed before hiring inventory handling staff. Previous service records and criminal history should be checked before hiring.  Access to inventory and cash storage areas must be strictly restricted.

In a small business, the owner should regularly check financial statements and payrolls themselves.

Documentation and restriction:

All transactions and processes must be documented. Accessibility to documents should be restricted.

Communication:

Regular interaction and communication between departments are crucial for fraud prevention. In many incidents, key stockholders are not aware of incidents happening in their corporation.

Watch over employee conduct:

Regular contact with under command staff and any change in their behavior also provide a clue to probable fraud risk. If an employee is not using leaves and putting in extra hours in your absence, keep an eye over him/her.

Listen to day to day issues of employees and show sensitivity to all minor complaints.

Use of technology:

The use of online systems can save transaction data from theft as well as disaster.

Security measures i.e., passwords and firewalls, must be applied to technology. Keeping your back-up file data in an offsite area as a part of preventive measures to fraud.

CCTV cameras should be installed in risk areas. Check out America's Best Bookkeepers

Anonymous reporting system:

The company must develop a hotline where vendors, customers, and employees can report fraud anonymously.

Assessment of fraud risk:

Managers should develop checklists for self-assessment and do the periodic review of a company’s fraud policy to analyze its validity.

Be a role model:

A positive working environment paves an approach to solutions to fraud prevention. Senior management should be the role model for their subordinates. Be honest and strict about company policies. Managers should not show carelessness or flexibility against any violation.

Work with CFE and CPA:

Work with a certified fraud examiner and certified public accountant to ensure implementation fraud prevention policies.

Conclusion:

Companies are at continuous risk of internal and external fraud. Prevention of fraud is an ongoing process. By applying effective measures, the risk of fraud can be minimized.

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