How Can I Protect Against Fraud?

by Debi Enders

While every business is susceptible to fraud, small business are especially so. That’s because small businesses typically take fewer fraud precautions and therefore have more exploitable “weak links.” When fraud happens, the results can be devastating. According to the Association of Certified Fraud Examiners, it takes a company, on average, 18 months to detect fraud once it begins. The losses that result amount to about 5 percent of a business’s annual revenue.*
Small business can protect themselves:

1. Conduct regular internal audits. An internal audit of your accounting department should focus on identifying the types of fraud that could occur and how they might be concealed. Check tampering, “skimming” and expense reimbursement fraud are common offenses.

2. Establish loss prevention procedures. Once you have identified areas where your business is vulnerable, take a closer look at who is responsible for each one. Then set up internal controls that eliminate opportunities for fraud.

3. Separate duties. Some small businesses unintentionally make fraud possible by allowing the same person to authorize, record and process a financial transaction. Employees who have full access to inventory and are also responsible for recording the accounting transactions related to that inventory, for example, can steal goods and cover up the theft with forged transactions. Dividing those functions between two people removes that temptation.

4. Automate work processes. Every paper check or invoice sitting on a desk is a fraud risk. By going paperless and using electronic billing and payment systems, you reduce the risk of tampering and information theft. You’ll also create an audit trail that tells you who has viewed or changed a bill. Receiving electronic payments not only saves on trips to the bank but also protects against improper deposits.

*Source: http://www.acfe.com/rttn/docs/2014-report-to-nations.pdf.

Deb Enders (debi.enders@commercebank.com) is vice president, small business banking at Commerce Bank.