THE BLOG

Securing Your Business Against Fraud

06/06/2012 01:01 pm ET | Updated Aug 06, 2012

For Women & Co. by Citibank's Small Business Resource Center

Sixty-six percent
of American businesses were victims of payment fraud in 2011, according to the Association for Financial Professionals. While that statistic is daunting, it shouldn't stop you from pursuing your dream of starting a business. Whether you're just starting out and writing a business plan, or if you've been running a business for a while, below are some tips that may help you safeguard your business.

Be Aware
First, it's important to know the types of fraud you could encounter as an employer. Some of the most common types of fraud include pocketing the proceeds from cash sales, making payments to fictitious vendors or employees, charging personal expenses to the business, and altering invoices. Employees that are more sophisticated may generate secret commissions or kickbacks, or book sales that are not actually final in order to increase their commissions or bonuses.

Put Strong Policies in Place
The goal is to prevent fraud before it happens through strong internal controls around management style and pay structure. Here are a few practices that can help:
• Make it easy for employees to report suspicions of misconduct and have policies in place to address every report. If you find evidence of fraud, don't hesitate to take disciplinary or legal action to make it clear that your company has a zero-tolerance policy.
• Make sure employees have ownership and accountability for their contributions to the business, commensurate with their experience and skills, of course. Try not to concentrate total authority in just one or two employees.
• Think about your compensation structure and what behaviors it is encouraging. In some instances, bonuses can encourage employees to dress up the books to appear better than they are.

Keep Your Eyes Open
Observing behavior and keeping an eye on the details of your business are also important to preventing fraud in your business. Be on the lookout for:
• A significant change in an employee's lifestyle.
• Employees that avoid taking time off, or seem possessive of their work.
• Book-keeping that is out of balance or disorganized or missing key documents missing from your files.
• Delayed deposits, checks made payable to the same individual -- or to "Cash."

There could be several reasons for such behavior. Don't jump to conclusions, but don't wait either. Dig deeper -- and enlist the help of your CPA if you are not proficient in accounting matters.

Create an Environment That Encourages Honest Behavior

Here are a few easy-to-follow measures:
• Assign key accounting duties to a number of employees, to help build checks and balances into your accounting processes.
• Keep your company's records in a secure location, where only authorized employees can access them. In addition, make sure all electronic files are protected by password access -- and are backed up in a different location.
• Review your books and credit card bills on a monthly basis, and verify figures such as bank balances, payroll disbursements, cash receipts, and credit card purchases.
• Above all, know your employees. Use background checks when hiring key accounting personnel, and talk with employees frequently to let them know you are closely monitoring the company's financial matters.

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