Contrary to popular belief, fraud does not only happen to large organizations and blue-chip companies. Fraud can also happen in small and medium enterprises as well. And because of the scale of operations that SMEs are limited by, the effects of fraud on smaller businesses can be more apparent. Small and medium businesses are often more vulnerable to these threats, as they may not always have access to state of the art tools and facilities that most large businesses do.
It’s the size and scale of small and medium enterprises that make them particularly susceptible to these acts. Smaller businesses usually have some employees take on responsibilities under different departments. Some SMEs may also be a tight-knit group, making it harder to call out suspicious behavior. Other factors do come into play that make them more prone to the effects of fraudulent acts, which is why SMEs should know how to avoid business and employee fraud.
Get acquainted with your employees
Every company dreams of working with employees that are honest and have integrity, but without the right selection process in place, chances are your small business could end up with a bad apple.
Conducting background checks during the recruitment process is vital to ensure that you select honest employees, no matter the size of your company. This is especially important when filling positions that require employees to handle the company’s finances or sensitive information. Background checks can be done internally, but if your company is understaffed, you can also get help from companies like Diligence International Group to screen your applicants.
Closely monitor your company’s financials
Any business, no matter the size, should always closely look at their finances. These include, but are not limited to, credit cards and bank accounts held in the name of the business, inventory and even account books. This should be done on a regular basis to ensure that there are no instances of manipulation of records, missing items, or even transactions that are out of the ordinary.
A case can be made that conducting audits is helpful, but not entirely effective since it does not prevent fraud from happening. While audits may not prevent a fraudulent act that has already happened, it can still deter employees with plans of committing fraud. Another method to prevent fraud would be to include a second check as part of the accounting or financial review process. Additionally, you can also let your employees know that audits and reviews will be part of the company’s culture to prevent fraud.
One surefire way to tempt employees to commit fraud is to assign them more than one duty relating to accounting or financial management. Having only one person handle all the bookkeeping, accounts receivable, petty cash and other financial duties in your company might mean that you are putting your company at risk for fraud.
In order to avoid financial crunch, employ at least two people to share the cash handling and accounting responsibilities. If you’re short on staffing, you can also consider outsourcing financial responsibilities to an accounting firm.
Businesses should trust that the employees that they have hired are honest and operate with integrity, but that does not mean they should not employ any checks and balances. Keep your company’s finances safe and prevent employee fraud by using the tips above.