Think only big companies have a problem with internal fraud? Think again! According to a recent report form the Association of Certified Fraud Examiners, businesses with fewer than 100 employees account for almost 30% of internal fraud cases.
Small business owners don’t always have the time or knowledge to properly design internal controls, and often larger entities also lack the resources or properly trained professional to do so. No matter, the professionals at Fuoco Group and its TFG Business Advisors division can provide assistance to address and correct deficiencies that can expose your business to both operational and financial risks and losses.
If you are looking to prevent fraud at your company, there are ways to set up internal controls that will enable you to deter it as well as detect it. In many cases it can be done by designing and implementing new processes and procedures or by modifying and correcting existing processes that are weak or poorly constructed.
We are understand that no matter the size or type of your business, there are challenges, and folks who resist change. However our business advisors and experienced tax, accounting and audit professionals suggest you focus on improving these 5 areas of concern:
1. Create a Separation of Financial Duties
If it’s not uncommon in your organization for a single employee to be solely responsible for completing multiple tasks in a key process or job function, then be forewarned that failing to properly separate important financial duties can result in a high risk of errors and fraud. In small businesses with limited human resources, it might be difficult to divide the performance of critical financial functions among different employees. But assigning different people the responsibility of authorizing transactions, recording transactions, tracking related assets, and reconciling accounts provides for more effective internal control.
2. Define Financial Policies and Procedures
Effective policies and procedures are one of the most underused control tools. There is value in creating written policies and procedures with checks and balances, and ensuring they are well known by management and employees alike. These common processes are important to define and document:
- Sales and Accounts Receivable
- Cash Management and Banking
- Purchases and Accounts Payable
- Payroll and Human Resources
- Financial Statement Closing and Reporting Documenting specific roles to be assigned to specific individuals provides transparency and consistency. It will also be easier to train new employees with procedures already in place.
Busy owners and CEOs are usually so involved in the daily operations of their business that it is difficult to pay attention to basic internal control monitoring procedures. Reviewing certain key metrics, sales figures, expense accounts, cash flow reports, variance reports, payroll summaries, and other data on a monthly basis will help you identify problems that may exist, and pinpoint questionable disparities or irregular activity. Proper oversight is essential to the internal control framework and an important aspect of fraud prevention and detection. Having your finger on the pulse of business performance can also provide valuable information for decision making.
Employees are often granted more access to information systems than they actually need to perform their job responsibilities. But providing access at a higher level then necessary can expose your business to fraud and create additional risks. Start new employees off with limited access to information systems and only the rights needed to perform essential functions. As the employee’s workload expands, or they are promoted, additional access rights may be granted.
Contact Us: Even if your business has limited resources there is much that can be done to prevent fraud and minimize risk of theft, or sabotage, or worse. Consider having our internal control experts do an audit and analysis for you that will identify problem areas. Together we can design an internal control program that works for you, your business, and your industry. Contact us toll free at: 855-534-2727.
