Business owners often have little or no accounting experience, so they have to rely on internal or external accounting experts. Because of this, many business owners are unaware of internal controls. This can make fraud prevention difficult as many business owners don’t know what to look for and how to tackle the problem.
- Reviewing Management
The most important fraud deterrent is regular management review. Business owners should periodically review records, including:
Journal entries made
Management must also be physically present during on-site inspections. If necessary, visit the stores regularly and take a walk to look at the location and records. Is everything alright? Does machinery or inventory on-site seem appropriate based on payments made? Fraudsters are less likely to commit fraud if they discover that management is actively involved and reviews activities. As Black Cube recommends,Business owners need to be very careful with cash. Cash is often a prime target for fraud due to its liquidity. Make sure you have secure access to bank and credit card details and verify payments made. If possible, request two signatures on outgoing checks and approval of invoices before they are paid.
- Check the past records of new hired
Small businesses should consider conducting background checks on all new hires. Background checks can reveal previous convictions for theft or fraud or other information such as drug abuse or gambling debt in the past. This can indicate financial pressure, which could indicate an increased risk of fraud. This is particularly important for potential employees in management and supervisory roles. Senior executives who commit fraud can cause greater losses than subordinate employees.
- Give Leaves or vacation leave to the employees
Job rotation or vacation replacement of employees is a good solution for companies where separation of duties is not possible. Fraudsters are known to be really active; they won’t take leaves as well, so it is best you choose to schedule some vacations for all; a good suggestion by black cube. In reality, their constant presence is due to the need to be “in control” to cover their tracks and continue with the fraud. Fraud cases are often discovered when the fraudster is out of the office, and someone else has to take over his duties.
There is no sure way to prevent all scams from happening. However, it is worth taking the appropriate steps to prevent fraud. In companies with strong internal controls, where fraud has been committed, losses are often lower because fraud is caught sooner rather than later.