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  • Writer's pictureSummit Bookkeeping

9 Ways to Protect Your Business from Fraud

Updated: Dec 28, 2020

As a business owner, we all worry about the possibility of fraud, embezzlement and other risks. Unfortunately, those with the least resources to prevent and bounce back from fraud are the most vulnerable. Small businesses with less than 100 employees report the largest percentage of fraud and lose almost twice as much per fraud scheme than larger businesses (those with more than 100 employees).

Fraud: A Big Problem for Small Businesses

Small businesses have a limited amount of resources to invest in anti-fraud programs but it’s extremely important to implement practices to protect your business. Weak internal controls were responsible for nearly half of the frauds reported in the 2018 Global Study on Occupational Fraud and Abuse.

Having a small business also makes it easier to create close bonds with each of your employees. You start seeing them as friends, sometimes even as an extension of your own family. However, this can result in a lack of procedures to prevent fraud. 

Fraud Prevention Practices

While it’s not possible to completely eliminate the chances of fraud, here are some practices you can put into place to reduce the risk:

1. Separate Financial Duties

One of the most important internal controls is separation of duties. This requires more than one person to perform and complete a task. It provides an extra barrier for fraud and acts as a net to catch any errors. Duties that deal with authorizing, recording, reconciling, and monitoring transactions should be divided by two or more people. 

2. Review Financial Documents Regularly

Keep an eye on financial documents such as your bank and credit card statements, paycheck amounts, payroll reports, P&L, balance sheets, etc. The median duration of a fraud scheme is 16 months, giving the perpetrator almost a year and a half to continue committing fraud, possibly costing you hundreds of thousands of dollars. Regularly reviewing your financials can help you catch fraud early.

The top 8 concealment methods used by fraudsters all include creating, altering, or destroying financial records. Therefore, it’s crucial to review these documents and investigate anything that appears out of the ordinary.

3. Leverage Outsourcing

Outsourcing is a common anti-fraud practice. This could mean hiring an accountant to perform an external audit of your company or using a bookkeeper outside of your company to process payroll. If you have a small business and need more employees to disperse duties between, outsourcing could be a good option. You may not need another full-time bookkeeper or accountant but hiring someone outside of your company will give you the opportunity to separate financial duties and ensure honesty and accuracy. 

4. Establish Written Procedures

Having written procedures that you require employees to read and sign will ensure that they are aware of your policies. This can include an employee handbook, code of conduct, zero-tolerance policies, etc.

5. Perform Background Checks

Your employees may have access to many important documents and records. Ensuring the integrity and honesty of a candidate before you hire them is extremely important. Besides running a criminal background check, you can also verify employment history, education, references, and run a credit check when applicable to job position.

6. Limit Bank Access and Permissions

Sometimes an additional user will need to access your bank account for purposes such as reconciling or reviewing transactions. However, limiting access to see or adjust what is necessary for that specific role can help prevent someone from having the ability to move or access your money. Contact your bank to create a separate login for users that only need viewing/printing access to your bank account.

7. Separate Credit Card for Each User

If multiple people make purchases in your company, request that the bank set up individual credit cards for each and link them to the business bank account. This allows you to track purchases back to specific credit cards and users. The bank will be able to provide separate statements for each card and a master statement with every purchase made on the account.

8. Enhance Check Security

Check tempering is a common form of fraud where an employee alters, forges, or conceals checks for signing. Keeping checks locked up, limiting those who have the authority to sign checks and reviewing cancelled or voided checks can help prevent check tampering. If you must pre-sign checks for any reason, be sure to log those check numbers and follow up to make sure they were used correctly.

9. Review Insurance Coverage

Review your insurance every year to ensure that it protects against theft and fraud. As your business grows, your insurance needs may change, so review your plan to make sure you are properly protected.

We hope that this has helped you consider new ways to avoid fraud. These are just a few ways you can protect your business, but we encourage you to find the practices that suit your business. 


If you’re interested in reading recent reports and surveys about fraud, check these out:

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