We hear about fraud and think this could never happen to us. In the 2014 Report to the Nations on Occupational Fraud and Abuse published by the Association of Certified Fraud Examiners, Asset Misappropriation accounts for about 85.4% of fraud causing a median loss of $130,000. On average the amount of time from when fraud commenced until it is detected in the study was 18 months.
Fraudulent asset misappropriation occurs many different ways by theft of cash, fraudulent disbursements, skimming, cash larceny, payroll schemes, check tampering and expense reimbursements schemes.
Most small business owners are busy with scheduling, customers, employees, ordering, sales and marketing that they don't have time for bookkeeping. They will hire a bookkeeper, trusted friend, family member or company to help with the task.
Just a few tips that may help a business owner protect against fraud:
Background check. A pre-employment background check will usually provide criminal record information.
Review bank statements. In today's digital world, most bank statements are sent electronically. If a bank statement is mailed, the owner should always open statement first. Look for unusual items such as transfers to other bank accounts, large transactions and debit transactions to unknown vendors.
Bank reconciliations monthly. Request bookkeeper provide a copy of reconciliation. Look for unusual items such as old outstanding deposits in transits and outstanding checks.
Online banking. The owner should go online to review the bank account. Most banks will provide online copies of cancelled checks. Review cancelled checks for the payee and endorsement.
Online banking access. Limit access capabilities for online banking. Owners should have full access, while other users should be set up with controls and limited access. Controls can limit access to specific bank accounts if the company has more than one account, dollar limits for daily amounts or transactions, ability to transfer between accounts, and online bill paying.
Check registers. Many small business owners use accounting programs, such as Quickbooks. Compare the payee/vendor on checks written to the actual cancelled check with online banking. As an example, fraudster may issue check payable to "CASH" for $x,xxx and then cash the check. However, in the accounting program, the fraudster would change the check payee from "CASH" to "ABC Supply Company" so it is not noticed by owner or manager.
If your company becomes of victim of fraud it is advisable to notify the appropriate authorities. All too often when fraud is discovered no criminal charges are made. Owners terminate the fraudster's employment and will agree not to press charges in return for restitution. Unfortunately, if there is no public criminal record the fraudster's next employer may be the next victim.