According to Canadian Business Journal, small and medium businesses are particularly susceptible to fraud which could result in major financial challenges. As much as 5% of an organization’s yearly income could be lost due to fraud. Reasons small and medium-sized businesses face a greater risk of fraud range from the number of staff, employees performing multiple internal functions, and less expertise in the handling of specific financial matters. While fraud can come from external sources, business owners must also be aware of internal sources. Here are some steps to take to reduce the internal risks of fraud in an organization.
Train Employees to Prevent Fraud
It’s important for employees in small to medium-sized businesses to be aware of different types of fraud, and steps to take to prevent it. Prevention knowledge such as how to report suspicious behavior or actions can go a long way. An effective tool is to establish an anonymous reporting system where employees can report suspicious behavior happening within the organization. Establishing a code of ethics that outlines unethical behavior also helps guide behavior that will not be tolerated.
Know Your Employees
Businesses want to hire honest employees with integrity. Regardless of the size of the business, having a formal hiring routine and the process will bring in strong employees and prevent fraud. Background checks should be a necessity. Surprisingly, employees who commit fraud are often the most appreciated by their coworkers because they work hard to gain trust and offer help to those who need it. Employees with this proactive attitude will often be trusted with multiple duties, and hence less oversight. Therefore getting to know your employees on a personal level and having controls in place to prevent fraud is a necessity.
Implement Internal Controls
Internal controls within organizations are crucial to preventing and detecting fraud. These controls can range from restricting access to financial data only to certain employees, restricting inventory access, and establishing multi-person sign-off on expense reimbursements. This will encourage employees in the organization to be honest and make sure everything is accounted for.
Work with Trustworthy Business Partners
Creating a trustworthy business relationship with other businesses is an integral part of owning a business. Make sure to know the basics of their operations, their physical address, multiple pieces of contact information, and references. Having multiple channels of communication is a major deterrent to fraud, and it allows your employees to verify business transactions to make sure they are going to the right people. For example, if an email is sent for a wire transfer, follow up with a call directly to the individual who sent the email to ensure the request is valid.
Get Expert Help
While businesses have taken the extra steps of ensuring their employees are educated in preventing fraud, it may be a good idea to bring in external experts to perform an audit of the business’ control processes. Another proactive approach would be to hire external cybersecurity experts to make sure your business is protected from cyber threats, internal or external. A team of digital transformation experts can also analyze your business processes to make sure there are procedures in place to protect your data and organization.
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