Seven Simple Ways to Help Protect Your Business Against Fraud
By adding some key safeguards to your financial processes, you can help keep your money safer and gain valuable peace of mind.
No employer wants to think that a staff member is capable of committing fraud. When you work with a small group of people every day, know their families, and remember their birthdays, you want to assume that they're trustworthy.
The sad truth is that some employees are dishonest. No matter how intimate your business is, you should establish guidelines to protect your company and its assets. Here are seven tips for creating processes for how money is handled in your business.
1. Establish check and reimbursement limits
Set a dollar limit over which you need to sign checks yourself. Base the limit on a logical amount that you feel comfortable with – one that doesn't require you to sign every check, but ensures that you see unusually high amounts. Set a similar limit for reimbursements. Make sure employees know they shouldn't use their own financial resources for an item without receiving prior authorization. At the same time, carefully examine reimbursement requests to ensure that you understand specifically what they are for.
Another option that might help you decrease the number of reimbursements is to apply for a credit card with a low credit limit. This way, employees won't have to spend their own money and wait for reimbursement, and they won't be able to charge too much on the credit card. Bob Beeson, a Stockton, CA-based accountant who specializes in tax services for small nonprofit groups, suggests a limit between $500 and $1,000.
2. Separate reconciliation responsibilities
The check-writing process has multiple steps, starting once the check goes out and ending when you reconcile your checking account to determine your current balance. "The person who signs the checks should never be the one who's responsible for reconciling bank statements," Beeson says. This way, the person who has access to the money has a counterbalance who can question any suspicious transactions.
3. Verify check recipients
Similarly, don't allow the person who signs the checks to open the bank statements, advises John Keil, a Brea, CA-based Enrolled Agent. Instead, have the statements mailed to your home or emailed to you. Also take precautions when allowing employees to access online statements.
Keil tells the story of a business that lost $1 million over several years through a controller's "ingenious" duplicity. The controller set up a number of bank accounts under fictitious business names, each of which closely resembled an actual payee of the company. For instance, one was called SCE, which had the same initials as Southern California Edison. The controller would write one legitimate check to the utility and then, a week or two later, another to the dummy company, knowing that if the duplicate were noticed, it could be passed off as a clerical error.
4. Protect unused checks
One method dishonest employees use to skim money is to steal a check from deep in a box of printed checks. To avoid this, Beeson suggests investing in a small fireproof safe with a lock so you can store checks, as well as cash, credit cards, master keys, and backup computer disks. Verify all check numbers, including voided ones. Don't leave open any opportunity for someone to take a voided check and write it out to himself or herself.
5. Keep signature cards up to date
Whenever someone who was authorized to sign checks leaves the company, contact your bank to ensure that the employee's signature card is destroyed.
6. Confirm working hours
Keep tabs on your employees' working hours and overtime so you can identify any outliers that pop up. If you aren't diligent, someone in payroll might be upping a cohort's hours in exchange for a kickback, warns Keil.
7. Set a security policy
Make sure your employees don't unwittingly help an outsider bypass your security system and give passwords to accounts or computer systems to that person. The outsider's story may sound innocent enough: They were hired as a consultant and need to finish a project over the weekend. Employees should know that, no matter how pressing the story sounds, they should not divulge sensitive information.
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