Signs Of Business Fraud And Ways To Prevent Them

Small business owners consider embezzlement prevention as a challenge because fraudulent transactions are difficult to detect. Missing cash balances cannot be easily noticed until the amount has been recorded. Even blank cheques and fake invoices are proof that something fishy is going on, and both small and big businesses can fall victim to fraud. It can even go as far as inventing fake vendors on invoices so cheques can be issued to themselves. This is by far the most common way an employees steals from the company.

The transaction raises a red flag once you discover that the bank statement is in somebody else's name. Unfortunately, it is already too late to put a lid on the transaction as it has already been made.

There is a fine line that separates incompetence from fraud. This is why it is hard to conclude that the transaction that took place was indeed fraudulent unless it has been done habitually. For instance incorrect entries may appear as though the bookkeeper has been changing information, but at the end of the day you will realise that the bookkeeper just did not know the correct process. It is essential to know the telltale signs before jumping into conclusion.

Signs of fraud

If a bookkeeper is having trouble matching accounts payable and accounts receivable to your balance sheet, you may need to review the information on the report. You will be given many reasons why the report has not yet been updated. In fact, a bookkeeper may tell you that the reason for not providing an updated balance sheet is because of faulty bookkeeping software. This leads to running a report manually. When reports are generated manually, the process will take longer than usual and the information can be altered. Bookkeepers will also blame the software for failing to reconcile a bank account. These excuses should be a cause for alarm and you need to act on it by regularly monitoring business transactions.

Preventing Fraud

Although you cannot easily detect or prevent fraud, there are ways you can prevent them and one of which is by giving bookkeepers deadline for running a report. Reports must be ready after month-end and you should review them monthly.

It is also necessary to assign a different person for enter the bills and paying the bills. You can monitor where the money is being spent if you ask employees to attach cheques to the invoices. You must also sign your own cheques. Physical inventory also helps you check if there are suspicious transaction taking place. Your employees have to know you are monitoring every transaction.

Tamara Deterding

Written by : Tamara Deterding