How To Avoid Theft And Fraud In Your Small Business

Theft can be in the form of tools, equipment, stock, stationery, cash, or even time. Fraud can be in the form of kickbacks, bogus vendors or personal purchases via the company - we're all susceptible.

Use these 12 ideas to protect yourself and your business:

1. Have a clear culture, so that all staff know there's zero tolerance - Be transparent that you have checks in place. Your staff will know things are being closely monitored and it's likely that if they did the wrong thing, they'll be caught. Lead by example and be honest in your dealings. If you steal, then how can you expect your staff to not follow your lead?
   
   
2. Rotate staff and their duties - Ensure staff have regular annual leave. One client of mine discovered a dramatic improvement in their profit during the one month a suspect employee was on annual leave!
   
   
3. Have appropriate segregation of duties - For example, the person in charge of purchasing should not also be responsible for creditor payments. When one person does it all, opportunities arise for dishonest staff to act. This can be difficult for small businesses where there is only one staff member, so you need to be careful in other ways if this is not an option for you.
   
   
4. Have a reconciliation process (cash register dockets, etc.) - Ensure when you deal in cash that the banking reconciles to the till dockets or taking sheets. Not only is this responsible from the fraud perspective, but the tax office also have an expectation that you have some reconciliation processes in place.
   
   
5. Have suitable authorisation procedures in place - When raising and signing cheques, purchases, etc. In a small business, as there may not be a lot of staff, perhaps the business owner should be the authoriser.
   
   
6. Computer systems should be used by authorised personnel only - With access controlled with methods such as pass-wording access. Does your system have "warning bells" such as credit limits being reached?
   
   
7. Assets, inventory and stock are tracked and regular stock-takes occur - Even if you don't have to stocktake for tax purposes, you should do so regularly, otherwise how will you know if stock is "walking" out the door?
   
   
8. Conduct a random audit - Even an informal one. Watch movements in your bank accounts and trust your instincts - most business owners have good "gut" feelings about their business. Consider having an independent review by someone external and experienced, such as your Accountant.
   
   
9. Have suitable reporting - Watch debtor and credit listings and other reports, such as Profit & Loss, Balance sheet, etc. Review regularly and frequently.
   
   
10. Ensure your books are up to date - If they aren't current, how can you possibly find anomalies?!
    
    
11. Be proactive - Look personally at your books and bank statements - Trust your instincts (they are probably right) and ask questions. Don't allow your bookkeeper or staff member to make you feel guilty for asking questions. Any qualified, professional and honest bookkeeper or employee will encourage and support owner review.
    
    
12. Investigate - If you seem to never have any cash, but the business appears to be doing very well - INVESTIGATE. It may be an error in the record keeping or an indicator that all is not well. Some ideas are :
    
    
    • Liaise with your suppliers personally to check that all is ok and your account is up-to-date
      
      
    • Look for large, or numerous, sale credits in your books
      
      
    • Look for large, or numerous, purchase credits in your books
      
      
    • Look for supplier names or employees you don't recognise
      
      

Some examples of fraud I have personally uncovered include:

• A bookkeeper sent a letter to suppliers providing new bank details - her's! She raised lots of large sales credits, so when payments went to her bank account, the company debtor's listing wasn't large.
  
  Amount stolen - Unknown
  
  
• A bookkeeper paid fake invoices to fake suppliers - except bank details were her own and that of her husband.
  
  Amount stolen - $400,000+
  
  
• A bookkeeper made payments for real suppliers, but instead of paying them, the funds went to her bank account and she kept the statements, letters of demand and late notices hidden.
  
  Amount stolen - $100,000
  
  

Would you spend 3 hours a month to earn sales of $400,000? Then why wouldn't you invest this time to avoid possibly substantial amounts being stolen?

These are extremes which the diligent business owner will avoid with a little common sense and keeping in the know. Remember that the majority of bookkeepers and staff are basically very honest, however we should be prepared for the occasional "bad apple".

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