Becoming a victim of fraud can cause your business to lose up to 5% of it’s revenue annually. Small businesses often do not have the resources to implement internal checks and balances of their accounting systems which makes them more vulnerable. Staff may be assigned to do a multitude of tasks that quite possibly do not fit into their expertise, which could very well include the accounting duties. There is also the issue of building trust among employees and contractors because internal fraud is also a possibility.
Small business owners who are not only pulled in many different directions after working hard following their dreams, will have to be prepared to oversee all their financial affairs. Listed here are a few examples of different fraud scenarios that can happen and how to identify them.
- Online Banking – owners should regularly check with their team to monitor money transfers. They should also be in contact with their financial institution in case of cybercrime.
- Payroll – owners must scrutinize their payroll systems consistently and enforce accountability. This type of fraud occurs in 27% of all businesses and more in small businesses than in larger ones.
- Cash theft – this can be done by skimming (nonreported cash is taken by the employee), larceny (reported cash taken by employee) or fraudulent disbursement (unauthorized funds being released). Streamlining the cash monitoring process for effective supervision of cash within the business and financial process is essential.
- Invoice email scam – this is when someone poses as a legitimate vendor and changes an existing payment arrangement causing the payment not to go to the vendor. Owners should check in regularly with their vendors to avoid this type of scam.
- False invoicing – this happens when an employee pays a vendor but diverts the cash to another account or creates a false vendor. Owners should have a basic oversight of all their vendors since this is becoming increasingly popular.
Owners must be hands-on in their business. While surrounding themselves with a great team, owners must have a firm control of their financial process. Too much delegation enhances the potential for increased fraud.