No business is too big or to small to be immune from the risk of fraud being perpetrated by employees, contractors, vendors, customers, officers, directors and others. Every business is also subject to the potential liabilities that could arise as a result of fraudulent or improper conduct by those associated with it. While big companies and big crimes get the headlines, small companies are just as susceptible to fraudulent losses as international corporations.
Some of the areas where business fraud is most commonly found are:
- Payroll, including unauthorized pay rates or hours, non-existent employees, excess vacation or benefits, inadequate withholding and employee/independent contractor misidentification;
- Cash Disbursement, including unauthorized payments of personal expenses, unapproved benefits, phantom vendors, excess vendor charges, fraudulent commission statements or calculations, misuse of company credit cards, theft of petty cash and unauthorized checks;
- Accounts Receivable, including theft of customer cash payments, miscrediting payments, diversion of customer funds and recording phantom payments;
- Inventory, including overstatement, theft, misdirection, over-valuation and misdelivery; and
- Employees, including disclosure of privileged or confidential information, fraudulent financial arrangements, fraudulent vendor relations, kick-backs, tax evasion and theft.
Some safeguards even a small business can implement include:
- Independent audit and review of financial records, inventory and sales;
- Limit access to funds, checks, deposits, cash, payroll information and general financial information;
- Require employees in sensitive positions to take required vacations so you can manage their jobs;
- Review financial records and conduct “mini audits” on a monthly or frequent basis;
- Review financial data from third parties such as bank statements, invoices and account reconciliations;
- Separate functions, including accounts payable, accounts receivable, receipts and inventory control;
- Use a budget and compare financial results to budget;
- Require multiple signatures on documents and all checks be endorsed for deposit only; and
- Generally monitor the backroom actions of your business, and your employees and business partners.
At Brooks, Tarulis & Tibble, LLC we have experience in implementing some of these protections to limit your exposure to and harm from business fraud, as well as to address those problems when they arise. If we can be of any further assistance to you in this matter, please contact us.