Take Steps to Prevent Employee Fraud

Monday, December 10, 2007

Edward Mitchell, Management Resources, http://www.mr-cg.com

Owners and operators of small companies are sometimes too complacent about employee fraud.

Many businesses have too few employees to provide for proper segregation of the duties. If one employee is allowed to handle too many functions, such as paying bills, collecting receivables, preparing payroll reports, handling petty cash, and making bank deposits, the company is wide open to fraud.

If you're a small business owner, you should stay close enough to the business transactions to be able to spot unusual problems with the receivables, payables, refunds, etc. Ask questions about accounts receivable balances from time to time. Insist on being the first one to open the bank statement. This provides you the opportunity to spot unusual checks, odd vendor names, or other irregularities.
Open all incoming mail from customers and vendors. This allows you to see customer complaints and adjustments to account balances.

If you pay your vendors on invoice, always pay on the same color of vendor's invoice. This should eliminate the possibility of paying the same invoice twice, once on the pink copy and once on the yellow copy. Indicate the date of payment on paid invoices.

If your employees prepare the payroll reports, have them reviewed by your independent accountant.

Have your accountant review your business and set up internal controls. This is the process of segregating duties to help minimize the possibility of fraud and creating safeguards to help prevent unintentional mistakes.

If you don't have a full year-end audit, at least engage an independent accountant to hold a cash flow review. This will not necessarily establish the existence or nonexistence of fraud, but it's one more step to help protect your assets.

For assistance in establishing appropriate internal controls for your business, give us a call.

For more information or assistance in this area, give our office a call.

Edward Mitchell
Management Resources
360-871-8267

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