Take a fresh look at your lifestyle.

How To Prevent Small Business Fraud Using Internal Controls

When combating fraud, most organizations turn their attention externally. However, it is equally important to identify the weaknesses within your business. Whether intentionally or not, your employees could be stealing from your company. That being said, employee theft costs U.S. businesses an estimated $50 billion a year. When you add suppliers and merchants to the mix, the true cost of fraud from known sources could be even greater.

Fortunately, implementing more internal controls could help reduce employee fraud and protect your business. With so much financial activity throughout the business day, it can be easy for illegitimate sales and expenses to fall through the system. That being said, carefully reviewing your financial records every day is the single most important step you can take to reduce internal theft. Validating records will also allow you to be able to reconcile all accounts and quickly spot any discrepancies.

Accidental Fraud In Small Businesses

Not all instances of fraud are intentional. It is possible for employees to accidentally share sensitive information or accidentally leave data open to fraudsters. While you can’t eliminate these accidental mistakes, limiting access to confidential data and reports to a need-to-know basis would be a good place to start.

Also known as the “principle of least privilege” (PoLP), this strategy involves blocking or redacting lower-level employees from viewing information that is unnecessary to perform their job duties. securing logins to financial records is also important to securing internal fraud. The end goal should be to plug as many potential vulnerabilities as possible before the information falls into the wrong hands.

A similar strategy involves separating those tasked with writing the checks cannot be the one who has the authority to sign them. Ideally, the people you trust should have the sole power to approve these payments before they are sent. The objective is to create checks and balances to make abuse more difficult to go unnoticed — for honest and malicious employees alike.

For more information on how to prevent small business fraud using internal controls, make sure to check out the infographic below.

Infographic created by MBS Accounting Technology & Advisory, an accounting advisory firm

Comments are closed.