Fraud is more common than ever, and small businesses are at a greater risk of fraud than larger ones. Many organizations have policies, procedures, and documents to prevent and detect fraud. The key to preventing fraud is strict implementation of all written policies, making all positions accountable and answerable for their actions. By adopting effective fraud prevention strategies, the risk of fraud can be reduced.
Internal organizational controls should focus on preventing fraudulent cases. Understanding the mindset of a fraud criminal 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 and analytical approaches to safeguard their business and have attained revenue growth by preventing fraud-related loss. However, very few organizations use a board of directors to guide them and help prevent fraud.
Here are a few roles that a Board of Directors (BOD) can play to prevent fraud:
- Hiring a new Chief Executive Officer
- 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 so that they can be effective and 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 access to sensitive customers, always check their background history, employment history, legal history, and ensure compliance to a code of conduct.
Provide employees space and flexibility to share views and problems with you to understand their personality better, and behavioral changes can be easily detected. Many honest employees can lean towards fraud in some stressful, domestic situations, especially if organization policies are lenient against violations and misconduct.
Keep an eye on your employees, develop anti-fraud tactics, educate employees about dangers and preventive measures and 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 cash in and out is an integral part of any fraud prevention solution program. Fraud criminals try to damage receipts or falsify inventory and transaction reports. Detailed and complete record-keeping systems should exist and should be free of loopholes. Cash coming in and amounts going out should be recorded, and payment records should be kept securely. An accurate financial statement is essential for internal controls and fraud prevention.
Solid, detailed records of all supplies and distributions of inventory should be maintained. Purchase orders should match GRNS. No inventory should be kept without paperwork. The record of donations and samples should also be maintained. Random and surprise inventory audits 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 files. There is no particular regulation for backing up data and maintaining files since the transaction volume determines it. This backup data is generally stored off-site and is used to identify and reconcile fraud.
Other safeguards and checkups for fraud prevention
Other necessary safeguards used for fraud prevention include: Hire a team of certified fraud examiners, use closed-circuit television cameras, and restrict employee access to offices, registers, cabinets, and storage areas. You should also use passwords and firewalls for computers and listen to contractors, vendors, and customers because they can provide clues and indicators of fraudulent cases.
Fraud may lead to a loss which your business may not be able to recover. Still, by adopting a few simple preventative strategies, you can turn your business into a secure organization with minimal risk of fraud.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 platform where their QuickBooks™️ file, critical financial documents, and back-office tools are hosted in an efficient SSO 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.