In a tough economy, white-collar crimes are more rampant than ever. A study by Marquet International, Ltd. on 2010 embezzlement data found that the average scheme lasted more than 4.5 years, the average loss was $1 million and two-thirds of the incidents were committed by employees who held finance and accounting positions. Whether you run a small start-up business or a Fortune 500 company, your finances are important ― and keeping track of them is essential.
While your business strengths may lie in production management, business development or customer service, it is imperative that you put certain safeguards and precautions in place to protect your business. If not, it doesn’t matter how strong you are in the other business areas.
To help protect yourself from financial fraud or embezzlement, consider implementing the following practices:
Conduct background checks prior to hiring
Although this may seem obvious, very few companies or small businesses actually do it. You not only want to pay attention to the criminal record, but also the credit history of the people you are hiring. This is especially true for people you are trusting to work in the finance department handling payments, credits, cash or expensive equipment.
While you may consider the employees in your finance department very trustworthy, it is a good idea to have a system of checks and balances throughout the finance process. Avoid allowing a single individual to be in charge of all of the bookkeeping. Assigning separate employees for billing, accepting payments and depositing funds can serve as protection. If you have a small business that cannot disperse the duties, a simple safeguard can be limiting the number of people who can sign for checks, or only allowing specific people access to checks from certain accounts. This way, if something looks funny, you can easily trace it back. Having the business owner as the only one who can sign payroll checks is one idea, as well as only allowing the financial person to have access to the account that issues payments for goods or services.
Understand your books
Knowing the basics of your company’s finances can make all of the difference. Basic things like recognizing who your key vendors are and keeping record of all invoices, payments and purchases is an easy way to begin. Often times, embezzlement occurs by someone issuing payments to a vendor that doesn’t exist, or issuing additional payments on something that has already been paid.
Along with the regular checks and balances, it is important to audit your books and inventory regularly. Surprise audits are sometimes a good idea if there are long periods of time between your routine audits. Consider hiring an outside professional to audit your books once a year to make sure that everything is on track. In addition to finding irregularities, you might find ways to improve efficiency or cash flow with these audits.
While you cannot anticipate every circumstance, establishing internal controls can help eliminate the risk of embezzlement within your organization. Of course, it is always a good idea regardless to know the financial aspects of your business — even if you decide to let someone else run the numbers on a day-to-day basis.
For more information about how you can protect your business from financial fraud or embezzlement, visit fswfunding.com.