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One of the biggest threats to the financial stability of any small business comes from the very people you employ to help your business thrive. Sometimes called the “fraud triangle,” the three main reasons employees commit fraud are need, opportunity, and rationalization. When these three things collide, it can lead to actions that will damage your company. Here are five fraud prevention tips for small businesses.
Many new business owners make the mistake of putting a single person in charge of accounting. While this may seem like a smart business decision, this actually presents that employee with a golden opportunity to skim money without anybody else having had the opportunity to find out. Businesses should have multiple people who handle functions such as cash handling, inventory management, client payments, and billing to make theft more difficult and easier to detect.
Having employees who you can rely on is part of the glue holding many small businesses together. Training your employees has the benefit of increasing their job functions while teaching them what to look for in the process. This also helps employers to show their employees the proper channels to follow if they suspect a coworker is engaging in fraud.
There are more types of theft than financial, including fraud related to inventory. Having a point-of-sale (POS) system that is capable of tracking inventory has many benefits, including the ability to document items from the moment they come into the store until the second it leaves. By improving your inventory control with a POS system, you eliminate an opportunity for fraud to occur.
Keeping accurate and reliable documentation for everything in your business should already be the standard operating procedure—especially the financials. This documentation makes it easier to perform audits of your employees. Performing regular audits on your employees, financials, and inventory is absolutely critical for effective fraud prevention.
There are a lot of things in your business that you are going to be great at, but you simply can’t become an expert at everything. If financials aren’t your strong suit, it’s ok to seek the help of an accounting professional to help manage the ins-and-outs of your business. CPAs advise their clients on the best ways to manage their finances and have plenty of fraud prevention tips for small businesses that make understanding the economics of your business simple.