As a small business owner or entrepreneur aiming to grow bigger and better, you obviously need, after all, your army of hard-working employees working alongside you. And you trust your employees; did a background check on each of them before hiring them, right? Yet many small business owners risk bookkeeping fraud.
Beware Small Business Owners: What the Numbers Say
According to a survey conducted by the Chartered Professional Accountants of Canada (CPA Canada), 46% of Canadian respondents have fallen victim to financial fraud at some point. This number has sharply risen since 2020, which had reported a 34% fraud count, with many people struggling the post-pandemic financial crisis.
Even more worrisome are the numbers reported by ACFE’s Occupation Fraud 2022: Report to the Nations, which focuses on occupational fraud – fraud prepared by employees against the organizations that employ them. A detailed look at the report clearly outlines how serious occupational fraud can be, especially for small business owners, working with a limited staff, amounting to the highest median loss of almost $150,000.
As a small business owner and entrepreneur, what can you do to ensure your business does not fall prey to such financial fraud? Here’s a list of Dos and Don’ts that you can put into practice.
Safer Bookkeeping: The Dos
Screen Before Your Hire
They say prevention is better than cure, and this is true even for bookkeeping frauds. Doing a thorough background check on potential employees cuts the risk of future unpleasant situations by a good measure. While most organizations check the candidate’s educational qualifications, past work experience and knowledge, it would be advisable to check details such as the candidate’s telephone number, home address, bankruptcy history, and criminal records.
Similarly, it is worthwhile to check on your business partners and other organizations or businesses with whom you work.
Set Up a Strict Anti-Fraud Policy
Laying down and sticking to a well-detailed Code of Ethics and Anti-Fraud Policy underlines how important honesty and transparency in work are to your business. Not only does it help set a strict code of conduct for employees, but also reassures your clients about trusting you.
Organizing fraud detection training sessions for the staff and encouraging employees to report any suspicious behaviour from co-workers, either directly or through an anonymous tip can also help nip the issue in the bud.
Stay in Control
Proper delegation of work might be the mark of a good manager, but as the boss, you must stay vigilant and aware of everything happening in your business. The first step is insuring your business against frauds or thefts in case one does happen despite all your safeguards.
Educate your employees (and yourself) about good practices, such as using different passwords for different online accounts and changing them regularly to prevent hacking of sensitive business-related data. Make sure all financial statements related to your firm – be it credit card or monthly bank statements – come straight to you first, giving nobody a chance to tamper with the documents. Regular, attentive checks on accounting records, inventory lists, cash inflows and outflows and other day-to-day monetary matters are of utmost importance. A monthly reconciliation of balance sheets and bank statements by you can help detect frauds before they snowball into bigger ones.
Get Independent, Expert Help
While an internal audit team works well, having an external team to audit your financial statements, as well as your internal bookkeeping records from time to time, is a good way to ensure your policy of transparency and honesty in business is being upheld.
Safer Bookkeeping: Don’ts
Do Not Entrust One Person With All Accounting
Fewer employees often means entrusting one employee with all the tasks of a single department. This concentration of power in the hands of one could lead to temptation and, eventually, fraud. It’s better to have separate people handling sensitive tasks like cash handling, accounting, making electronic payments, etc. Also, do not entrust individual employees with passwords and confidential data – ensure you have access to all information while your employees have limited access.
Do Not Become Complacent
Entrepreneurs often retain some of their earliest employees, who have practically built the business with them. Having worked together for so long tends to transform the boss-employee relationship into a more informal, friendly one. However, you need to draw a line between personal and professional. It would be risky to assume that long-serving employees will never commit any fraud, especially now when the financial crisis is at an all-time global high.
Do Not Turn a Blind Eye to Discrepancies
According to the above ACFE’s Occupation Fraud 2022: Report to the Nations, it takes a minimum of 12 months before a typical fraud case is detected. The same survey reports that 85% of fraudsters had displayed red flags in their behaviour before detecting the fraud. So, no matter how big or small any discrepancy in your bookkeeping records or employee behaviour is, investigate it immediately.
It is always a good practice to hire a third-party independent bookkeeper and accountant to audit your books and process. Most scams get caught during external audits.
Contact Glenn Graydon Wright LLP in Oakville For Further Assistance for Safer Bookkeeping
If you have queries regarding bookkeeping and accounting, we are here to help you. At Glenn Graydon Wright LLP, our professional accountants and bookkeepers can guide you on best bookkeeping practices and help you identify gaps and frauds. You may also contact us at 905-845-6633, or connect with us online, for assistance with any safer bookkeeping and accounting services.