According to the Association of Certified Fraud Examiners, mid-sized and small businesses mostly fall victim to organizational fraud. Startups with less than one hundred employees experience the highest number of all frauds, including financial statement fraud, theft, and asset misuse.
The worst part is that employees are often the culprit, a fact that your small business may not survive. Your workers can claim fraud like claiming fake expenses, stealing, or taking property. However, you can save your startup business.
Fraud is a significant cause of many business failures today. The minor “thefts” from your employees may not look essential initially, but they can impact your business negatively and terribly. Therefore, it is advisable to implement more fraud prevention tips to safeguard your business.
Here are some fraud prevention tips you can implement.
Tip #1: Know Your Workers
A fraud perpetrator will likely show signs or behaviours that suggest their intentions to commit employee fraud. You can identify potential fraud risks by listening to or observing your employees. Therefore, it would help to interact with your employees and take time to get to know them better. Often, a change of attitude may suggest a potential risk or internal issues that need addressing.
For example, if your employee feels unappreciated or angry with you, they may fall for the temptation of committee fraud. In many cases, you will likely suffer fraud from the worker you least expect. As a result, it is imperative to understand your staff through conversation and close observation. You can also hire corporate investigation services to understand your business better.
Tip #2: Implement and Maintain Internal Controls
While you may feel immune to fraud in your small business, it would still help to implement internal controls. These are programs or plans to protect your company’s assets and ensure its accounting record’s integrity.
They also help deter theft and detect fraud. Duties segregation is a crucial component of an internal control plan that can minimize the risk of fraud. For example, having only one manager, cashier, and salesperson for your retail store is wise.
In addition, it helps to maintain proper documentation so that you can access all records when needed. It would be helpful to monitor and revise internal controls to ensure they are up-to-date and in line with current technology.
Tip #3: Audit High-Risk Sectors Often
It is advisable to audit areas dealing with cash, product returns, refunds, inventory management, accounting and bookkeeping records often and randomly. Inform your employees that auditing will occur, but do not give a schedule. These random audits will help you detect fraud effortlessly. However, it would help to hire reputable auditors for this task.
Tip #4: Train Your Staff to Prevent Fraud
Training your employees in the areas of your small business prone to fraud to detect and prevent fraud and to report coworkers’ and customers’ suspicious behaviour. Enlighten your team on some typical signs of a fraudster. In addition, setting up an anonymous reporting function will make it more comfortable and easier for employees to report.
Furthermore, it would help to create a code of ethics demonstrating that your company will not tolerate fraud. With this, all the parties considering fraud will know that it is a crime punishable by law. Many people will likely engage in fraud if they know that unethical behaviour can go unpunished.
Tip #5: Keep Detailed and Accurate Records
Organizing yourself and staying on top of operations will significantly help lower fraudulent activities. So, you can start with accurate and detailed bookkeeping. For instance, you may not know how much stock disappears without your knowledge if you do not have a clear inventory record.
Additionally, accurate records will help you determine how much money is coming in and out of your business. It will also show you how much your contractors bill you for the job they accomplish. Therefore, proper bookkeeping is crucial in fraud prevention since even auditors will only audit what is in the books of accounts.
Tip #6: Research Before Hiring
Hiring is risky since it is bringing a stranger into your business. Therefore, it would be wise to research well when sourcing for a new staff or external contractor. Do not ignore references for potential contractors and employees.
Sometimes, it may be necessary to involve detailed background checks when hiring for some positions. However, you must first ensure you can legally do that. If not, engaging a reputable pre-employment screening service might be your only chance. In any case, do not bring a new employee into your company if you have doubts.
Tip #7: Draw Clear Policies
Setting clear policies will make workers aware of the impact of their doings on your company and the ramifications if discovered. For example, some employees may not see a clear distinction between a worker taking home an idle laptop from the office and another taking home a few pens.
These are typical situations where workers tend to “borrow” office stuff. In your policies’ manual, outline your expectations of worker conduct and what you consider theft or fraud. Also, specify the consequences of breaking these policies.
