By: Monica Duarte, CPA, MSA
No business owner or manager wants to believe that their employees could ever commit fraud, but the sad reality is that it is more prevalent than you think. Pressure, rationalization, and opportunity can push honest people over the line.
Business owners and managers cannot usually prevent their employees from feeling financial pressures, or from rationalizing their behavior and schemes, but they CAN prevent the opportunity from arising.
The most basic way to prevent fraud from being committed against your business is to design and enforce a system of processes and controls. The number and sophistication of controls will vary by business, but there are some crucial controls which every business should have:
- Separate duties – Opportunities for fraud often arise because someone has overlapping responsibilities. For example, an employee may be responsible for ordering goods and paying vendors, which would make it easy to order goods and sell them on the side, or to steal them and pay for the items using company money.
- Reconciliations – Reconcile your important accounts on a monthly basis. If you do not, it is amazing how quickly variances can get away from you. Reconciling goes beyond bank accounts, however, and should encompass inventory, accounts receivable and accounts payable, subledger reports from the accounting system, and the general ledger.
- Three-way match – Vendor checks should be matched to a purchase order/contract, evidence of receipt of goods or services, and an invoice. If these three items are not present, then it is quite possible that those payments have not been properly authorized and are not valid business purchases.
- Vendor list examination – Review your vendor list for entities with similar names — ACME Inc. and ACME LLC, for example. A fraudster may steal and cash the checks meant for a real vendor under a similar name. You might be surprised how easy it is to open an account under the name of a business.
All of these controls, however, are only as strong as their enforcement process. A written process does nothing if it is not implemented.
Overall, make sure that you look into things that do not seem right, and obtain proof of your suspicions. Too many people have been fooled because they just took a fraudster at their word.
If you think your business might be vulnerable, Osborne Rincon can help. Contact us at 760-777-9805 for assistance in identifying weaknesses and designing preventive measures that will keep your company safe.