FOR IMMEDIATE RELEASE: October 29, 2007

DON’T LET MISCHIEF STRIKE YOUR COMPANY: FIVE STEPS TO PREVENT FRAUD IN YOUR BUSINESS

Every year, businesses all over the country lose billions of dollars to employee fraud. And while the big companies make the headlines, small- and medium-sized businesses are equally – and sometimes more – at risk, primarily due to a lack of awareness or a false sense of security. According to the New York State Society of CPAs, the fraud prevention tips below offer smart small business owners steps to protect their business’ financial assets as well as their reputation.

1. SCREEN APPLICANTS THOROUGHLY BEFORE HIRING THEM

Hiring the right employees is the best way to stop fraud before it happens. CPAs say that it’s a good idea to perform background checks on potential employees. You’ll want to screen the applicant’s criminal history, civil history, and drivers’ license violations, and verify his/her education, past employment and references.

Since employees experiencing financial difficulties may be more prone to committing fraud, think about requesting a credit check as well. Before performing background and credit checks, be sure you understand and comply with any legal requirements for obtaining the applicant’s consent.

2. IMPLEMENT INTERNAL CONTROLS TO REDUCE FRAUD RISK

Many small businesses depend on one person to process payments and invoices, make bank deposits, handle petty cash, and reconcile bank statements. This is asking for trouble. Your business should implement a system that spreads and, if possible, rotates the financial duties of the business among two or more employees.

Store bank checks in a secure location and carefully review your bank statement each month, taking special care to look for checks made out to cash, employees, or suppliers you don’t know. It’s a good idea to have your bank mail your company’s statements to your home address, so you’re sure you receive them before anyone else.

Insist that all employees, especially those with financial responsibilities, take a mandatory vacation of at least one week of consecutive days. Fraudulent employees will often resist taking a vacation out of fear that whoever does the job in their absence will uncover the fraudulent activities.

3. BE A ROLE MODEL AND LEAD BY EXAMPLE

An effective way to prevent fraud in your business is to create a positive work culture. It is important that the business owner and senior management serve as role models of honesty and integrity. If the individuals at the top take a careless approach toward company policies and procedures, they are inviting their employees to do the same – or worse.

Set clear standards from the beginning by implementing a company-wide written code of conduct, and make it clear to employees that the company has a zero tolerance policy for employee theft. To maintain credibility, be sure to conduct a prompt and thorough investigation of every incident.

4. IMPLEMENT AN ANONYMOUS THEFT REPORTING SYSTEM

Every company should establish a system that makes it easy for employees, vendors and customers to anonymously report suspected fraud activities. Be sure employees understand what constitutes fraud and that all reports are treated confidentially and without reprisal.

5. WORK WITH A CPA

Consider hiring a CPA to conduct both regularly scheduled and surprise audits. Audits can serve as a deterrent because when employees are aware that there will be checks of their areas, they are more likely to stay honest. A CPA can also help you set up and maintain effective internal financial controls.

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Produced in cooperation with the AICPA
©2007 The American Institute of Certified Public Accountants
PUBLIC SERVICE ANNOUNCEMENT
KEY WAYS TO PREVENT FRAUD IN YOUR BUSINESS
Approximate Length: 45 seconds

Every company, no matter how small, should protect itself from fraud. The New York State Society of CPAs recommends that small business owners take some preventive measures, such as thoroughly screening potential employees, implementing a code of conduct, and setting a strong “tone at the top” with no tolerance for employee theft or financial abuse. One of the best ways to prevent fraud is by implementing a strong internal control policy that, among other things, provides clear and strict procedures for those who process any kind of financial transaction. You will also want to make sure that, as much as possible, you try to spread or rotate the financial duties of the business among one or two employees. Limiting it to one person creates a potential problem. It is also important to make the time to not only manage but also periodically review the work of these individuals. A CPA can help you set up these systems and advise you on other fraud-prevention measures.