While we’re thinking about turkey and cranberry, an important business holiday will come and go – not with the same fanfare as Thanksgiving perhaps but with significant potential for preserving the business future for those who take note.
During International Fraud Awareness Week (Nov. 15 – 21), I encourage every business owner and executive to take several essential, but relatively simple, actions to protect their companies from fraud and internal theft. You may think it will never happen to you because you conduct employee background checks, verify references or have employed the same loyal group of people for decades. It isn’t enough. As a forensic accountant I see how prevalent fraud is in the business and non profit communities, but you should take certain steps to reduce your risk of becoming a victim of fraud.
The Association of Certified Fraud Examiners estimates that 5 percent of gross profits are lost to internal business crimes. Crimes like these can persist for years, and often do, before being detected, and the majority of the offending employees have no criminal record.
Small businesses are particularly at risk because the lines of separation between duties may blur, eliminating natural safeguards.
But, with education and planning businesses can help protect themselves.
Top three tips fraud-prevention tips:
- Maintain strict separation of financial duties: Small businesses may be tempted to assign one employee to multiple financial duties, but this is the common denominator in most occupational fraud cases. It provides easy opportunity. Businesses should assign each of the financial duties to different employees, including billing, opening the mail, recording payment receipt and reconciling the bank account. Collusion between employees can certainly still happen, but separating duties will make it more difficult for one employee to perpetrate fraud. This is especially true if employees are required to take vacation and the owner performs their tasks in their absence.
- Check your insurance coverage. Many businesses will find that they are inadequately insured for fraud and theft. I find that when coverage does exist, many businesses have low limits, typically $25,000 to cover such schemes. As an example, the average cash larceny scheme totals $50,000 or more before being detected. Factor in deductibles, investigation costs and lost productivity and the cost of fraud can cripple a business. I encourage businesses to realistically assess the financials and ask how it would impact business viability to incur several years of losses representing as much as one-third of revenue.
- Recognize fraud exists in many other forms, from HR to insurance fraud, and get educated on how to protect your business investment during International Fraud Awareness Week.