Fraud Prevention Strategies for Your Business

While it may seem counterintuitive, small and medium sized businesses are far more exposed to the prospect of fraud than large organizations. Approximately 5 percent of annual revenue is lost to internal fraud each year, according to research from the Association of Certified Fraud Examiners (ACFE). Unfortunately, many businesses focus their fraud prevention efforts on external threats, when the reality is that employees, managers, and even executives and owners are most often the most significant threat.

Organizations who fail to have a fraud prevention and fraud detection plan in place are opening the doors to a big potential loss. More often than not fraud comes in the form of the one of the following three categories:

  1. Financial Statement Fraud
  2. Theft
  3. Misuse of Assets

When it comes fraud, the size of the company matters. While any size company is vulnerable to fraud, smaller companies typically have operational issues in place that make them particularly susceptible. For instance, when a small company relies on employees wearing multiple hats across a number of departments, the company lacks a level of oversight necessary to prevent fraud. All in all, having a set of measures in place to deter fraud is paramount to protecting a small or medium sized organization.

The following are some general guidelines that should be instituted in your company to prevent fraud:

  • Reassess your hiring routine. Everyone likes to think they know their employees, but the reality is that some of the most well-liked staff members are the ones who commit fraud. Background checks and references are critical.
  • Get in the habit of regularly checking business bank accounts. Keep an eye out for issues like third party checks, missing checks, out-of-order checks, and payment to unknown recipients.
  • Make sure at least two people are overseeing accounting responsibilities. When small businesses designate one person to this role the risk of fraud skyrockets. Adding another set of eyeballs for oversight is vital.
  • Establish an internal control program. Protecting the company’s assets means taking an active role in detecting fraud. Access to things like financial account data and inventory should be limited, payroll should be maintained by multiple people, and frequent audits of the books is necessary.
  • Create an employee training program to prevent and detect fraud. Suspicious behavior is often not reported because employees lack the training to do so properly, or even lack the ability to spot its occurrence in the first place. From an anonymous reporting process to regular education sessions about fraud, establishing a system will keep employees vigilant while simultaneously serving as a deterrent.

At Ellrich, Neal, Smith & Stohlman, P.A., we have years of experience in fraud-related activity. Our staff includes five Certified Fraud Examiners who are involved in fraud detection and prevention engagements. Such engagements include evaluation of an organization’s internal controls, identification and measurement of frauds, and implementation of procedures that will reduce the risk of falling victim to fraud schemes in the future.

Past fraud engagements have resulted in successful recoveries in both civil and criminal actions. Reach out to our Orlando, Miami, or Palm Beach Gardens offices today to learn more.