3 Fallacies Regarding Fraud In Small Businesses And What You Can Do About Them
Posted on: 1 June 2016
Small businesses often thrive because they trust their employees. They are small in size and sometimes believe that they are invincible to embezzlement and fraudulent activities. However, this is not necessarily true. In fact, here are three misconceptions related to small businesses and fraud:
- It Doesn't Occur in Smaller Businesses – Regardless of size, every single business is susceptible to fraud. When you make the decision to ignore possible threats or fail to take preventative steps to guard your business, your company is that much more at risk.
- Your Employees Are 100% Trustworthy – Believe it or not, it is these employees who may be the ones who are committing fraudulent acts. There may be a worker who rejects their vacation time and you see as a form of dedication. However, it may be a way for the employee to keep their fraudulent activity covered up. If they were to leave their desk, someone else may uncover what they've been doing.
- Your Instincts Will Inform You If Fraud Is Occurring – While you can rely on your gut for many things, fraudulent activity in your business probably isn't one of them. Statistics show that the average scheme will go on 18 months prior to being detected. So, if there aren't any internal controls in place or you are not reviewing your financials, fraudulent activity may be occurring under your roof.
What You Can Do to Prevent Fraud
Now that the myths have been dispelled it is just as important to know what you can do to help avert fraud in your business. There are a few simple steps that you can begin implementing right away, including the following:
- Develop a Solid Separation of Duties – In small businesses, it isn't uncommon to have one person take care of everything from beginning to end, especially in the accounting department. However, this is a big mistake as this makes it much easier for fraud to be committed. There should be multiple people in the finance department. The same person who writes checks shouldn't be allowed to also sign them. Separate duties among several people to prevent both error and fraud.
- Make Employees Take Mandatory Vacations – This may not seem like a very large step, but it is one that can make a huge difference. As already mentioned, if an employee is not taking their vacation time, it may be because they are hiding something. This may not always be the case, but you won't know if you don't make vacations mandatory.
- Begin Reviewing Your Financials Regularly – It is vital that you set time aside every month to go over your business's financials. This will aid you in identifying any payments, transactions, etc. that look suspicious to you. If anything looks amiss, you can dig deeper into the money trail. It may have just been a data error or it may be something more serious.
If you suspect fraud in your business, enlist the help of a forensics consultant, like one at Epps Forensic Consulting PLLC.Share