Tips To Safeguard Your Business Against Internal Fraud

Fraud causes businesses to lose 5 percent of their yearly revenue, according to the annual report from the Association of Certified Fraud Examiners (ACFE). Fraud situations are especially threatening to smaller enterprises, since they can lack sufficient resources to support accountability systems within their accounting department and software. The first step to shielding your business from extortion is to be aware of some popular fraud scenarios.

Emailed invoice scams

Emailed invoice scams occur when someone pretends to be one of your business’s legitimate vendors and sends your business either a false invoice or a revised one that claims to have updated payment terms. It’s important to schedule regular overviews of each account your business has with outside vendors.

Electronic banking

While online banking is a convenient way to transfer funds quickly, this method is vulnerable to cybercrime. Sometimes employees transfer money to the wrong account, or even a fake one. Help prevent this type of fraud by keeping in touch with your financial institution about potential scams. It’s also wise to hold regular meetings with your accounting team to monitor transactions.

Payroll fraud

According to the ACFE, small businesses have a 42 percent higher risk of payroll fraud than large businesses. The most common forms of this fraud are inflated expense reports, claiming overtime hours not worked and creating fake (or “ghost”) employees in the payroll system. Monitoring monthly reports is an essential foundation for creating accountability for payroll staff. You may also want to consider internal controls within your payroll system, such as requiring employees to get approval from two people before making any changes to payroll. The ACFE also recommends separating certain payroll duties. For example, have two different employees write payroll checks and compute staff hours for payroll.

Fake invoicing

This type of fraud occurs when an employee pays a supplier, but then directs the cash to a side account instead of sending it directly to the supplier. Sometimes it involves an employee creating a fake vendor within the invoicing software, then diverting the funds into a side account. Business owners can combat this by scheduling regular meetings to review every vendor within your accounting system to help minimize the risk of financial loss due to false invoicing.

Cash thefts

Another common fraud risk for small businesses is cash theft. This type of extortion can take a few different forms: larceny, fraudulent disbursement and skimming. Help eliminate this type of fraud by establishing a streamlined monitoring system for supervising your business’s cash flow. For example, make daily deposits and reconcile bank statements each month. This will help prevent cash from sitting around in plain sight to tempt personnel.

With a little foresight, it’s easy to establish some practical accountability checks and balances, and separate financial duties of staff to protect your business from fraud. Click here for more information on Washington Trust’s fraud protection services for businesses.