Fraud 2020 – 10 Steps to insulating your business

In an economy with lack lustre growth for several consecutive years and an overall economic environment that is under pressure by all accounts, as a business owner you face the very real risk of fraud hurting your business still more.  Smaller businesses are more at risk of fraud, as higher levels of cost consciousness translate into employees being tasked with an array of responsibilities offering the inherent opportunity to misappropriate your business assets or resources.  From theft of cash, employees claiming reimbursements for fictitious expenses or theft of other assets or consumables, fraud is a risk that you face as a business owner or general manager.  Follow these 10 steps to insulating your business against fraud:

  • Segregate accounting duties

In simple terms, if one employee handles cash and performs accounting functions that enables that same employee to process accounting entries to conceal any movement of cash, you have a problem with lack of segregation.  An employee involved in the handling of cash should never have the function or capability to record accounting entries pertaining to that cash.  If you cannot segregate the functions, consider a virtual CFO relationship with an accounting firm or outsourcing at least some of your accounting functions.

  • Know your team

Ensure that you perform background and credit checks on all employees before you hire them.  Remember that employees inclined to commit fraud will go out of their way to gain trust from colleagues and management by working late, etc, which translates to you as the business owner more easily dropping your guard since you are potentially mistaking their “loyalty” when they are paving the way for their mischief.  Ensure that you enforce staff taking leave as this usually exposes fraud when the employee in question is away.

  • Exercise tight internal controls

Even small businesses need to create and maintain internal controls that would deter or detect fraud.  Ensure that you restrict access to financial account information, that access to inventory is controlled, expense reimbursements endure multi-person signoff and, as the business owner, that you perform a review of your books of account – and ask questions!

  • Review business banking accounts

If you as the business owner, regularly log into your online banking accounts to review statement activity, this will serve as a significant deterrent to would-be fraudsters.  Be on the lookout for beneficiaries that you do not recognize, frequent payments to the same beneficiaries and payments on unusual dates.

  • Self-audits

Regularly audit areas of your business that work with cash, refunds, inventory and accounting and do not disclose to your employees your timelines of when you will be performing these audits.  If you are able to make self-audits a part of your weekly or monthly routine, without your team knowing when you will audit next and what you will review, fear of detection will discourage any mischief on their part.

  • Staff training

Create a culture of zero tolerance of fraud in your business and train your team to know how to recognize fraudulent behaviour and what to do in the event that they discover or suspect such conduct. 

  • Protection of credit card information

Small business owners tend to fall into the trap of mingling their personal and business funds.  At all times, keep them separate or alternatively ensure that your bookkeeping function maintains detailed reconciliations of business vs personal expenditures.  Company credit card details should be known to only the most senior of management, with password management protocols in place.  If your business relies on online purchases for business expenses or consumables, ensure that your preferred online retailers offer secure payment portals and observe website security protocols. 

  • Know your customers and suppliers

As one would perform background checks on new employees, operate the same protocols with new customers or suppliers to ensure you know exactly who you are doing business with.  Knowing how to mine the internet is an invaluable skill in this exercise, as are local credit bureaux and credit information providers.

  • Take every case seriously

If you have taken the trouble to set up anti-fraud procedures and protocols, it is vital that you follow them and take every non-conformance seriously.  Your zero-tolerance policy relies on your vigilance in following and embedding those protocols. 

  • Call the experts

If after doing all of the above, you are still experiencing recurring fraud or shrinkage in your business, it’s time for the forensic experts.  Accountants make for great investigators and financial detectives, and have the talent to unearth that which you cannot see. 

Our business consulting team is passionate about helping you to keep your business honest and prevent fraud.  If you require our input or advice, reach out to us at https://www.mmsgroup.co.za/contact/.



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