6 Ways to Help Your Small Business Prevent Fraud and Costly Mistakes

New work environments have created new risks and obstacles for many small businesses. Working from home offices or at remote locations provide additional opportunities for sensitive information to be compromised. From unsecure internet connections to less employee oversight, systems can be accessed at any time of the day or night without a manager or supervisor nearby.

In the September 2020 issue of Accounting Today¹, fraud was reported to be on the rise during the coronavirus pandemic.  According to the article, “more anti-fraud professionals are seeing fraud increase in nearly every category. The largest growth was in insurance fraud (12 percent increase), loan and bank fraud (11 percent), financial statement fraud (11 percent), identity theft (10 percent) and employee embezzlement (9 percent)”.

While an increase in fraud is being reported, there is no need to panic. If you haven’t reviewed and updated your existing systems in response to changing work conditions, it is not too late to create a plan. The following list provides six ways to help you prevent fraud and reduce risk in your business.

1. Protect Your Small Business Passwords

Limit the number of people who have access to passwords of business accounts such as:

• Email business accounts
• Bank/financial accounts
• Bookkeeping/invoice software
• Websites and social media accounts

2. Create internal systems to avoid unauthorized or duplicate payments

• Use a unique identifier when placing orders with vendors
• Set up processes to approve payments
• Understand your accounting software and use built-in features to help detect duplicate invoices or payments

3. Know your vendors

• Create an internal process to approve and verify new and existing vendors
• Confirm products and services were received before authorizing payment

4. Pay attention to payroll

• Outsourced payroll needs verified and approved
• Check employee names and rates on a regular basis
• Expense reimbursements should be approved to make certain business reimbursement policies are being followed

5. Check the checks

• Perform monthly bank reconciliation by verifying the cancelled check with the bank statement and accounting software
• Note when check numbers are out of order or missing and research
• Verify authorized signatures are accurate

6. Segregate accounting duties

• Review bank statements before turning over for reconciliation
• Review accounts payable and accounts receivable reports each period for accuracy

Challenges for Small Business Owners

Small business owners do not always have the luxury of having more than one employee available to segregate accounting duties. Often, one person is responsible for all aspects of the financial record keeping for the company. Implementing internal systems to mitigate risk is possible no matter what size your business may be.  

We understand the specific needs of small business owners. Loss of income due to error or fraud can make it difficult to meet your goals and the financial needs of your business.

Establishing the right internal controls specific for your business, including the steps listed, can help you keep your business on a secure path to reduce the risk of loss and ensure the accuracy of your financial information.

If you have questions or need assistance setting up systems to mitigate risk, please contact us.

¹Fraud on the rise during coronavirus pandemic, Accounting Today, Cohn, M., September 11, 2020, retrieved September 29, 2020.

Christine Nelson is an accounting paraprofessional in our Center City Philadelphia office. With over 20 years of experience, Christine helps businesses set up and maintain bookkeeping systems including QuickBooks, MAS 90, Great Plains, Creative Solutions, Peachtree and NetSuite. She is also available to manage, train and help transition companies to a new bookkeeping system.