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“Basic Internal Controls that All Business Owners Should Enforce” by Susan Burnoski, CPA | Director/Senior Manager – Audit & Assurance Susan Burnoski

As a business owner, you need to protect your company from theft and false financial reporting. Strong internal controls can help ensure that your business’ financial integrity stays intact.

It’s not a pleasant thought, but there is always a chance that an employee may try to steal from your business. There are specific reasons why employees commit fraud, including pressure, rationalization, and opportunity, and you need to protect yourself and your business. Internal controls are special procedures that can help prevent employees or other people from committing fraud, whether it’s physical theft or a detailed financial scheme.

A few preventative measures can go a long way toward keeping your business healthy, while some detective procedures can help you snuff out problems before they snowball into massive issues. Here are some basic internal controls that you can use to protect your business from fraud.

Segregation of Duties

No single employee should be able to initiate, approve, and record transactions for your business. By segregating related duties, you will make it more difficult for an employee to commit fraud without colluding with someone else.

Lock and Secure Business Assets

Loose assets may end up with a new home if you’re not careful. A simple solution is to lock up valuable assets and eliminate the opportunity for employees to steal them.

Use a Lockbox for Cash Receipts

Like other assets, cash receipts can disappear. Eliminate this issue by sending cash receipts to a lockbox in the bank instead of directly to the company.

Review Cash Disbursements

A quick review can help owners catch incorrect disbursements. Take a look at the money that leaves the company, such as checks or payments, and review them to see if they make sense.

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Ensure that Bank Reconciliations Are Completed in a Timely Manner

It’s easier to catch fraud if you notice issues sooner rather than later. By completing bank reconciliations quickly, you may be able to sniff out fraud before an employee has a chance to hide it.

Ask Questions About Transactions

Don’t be afraid to ask questions about a certain transaction if it seems fishy or if you don’t know why it was made. Legitimate transactions will have legitimate responses, but employees may scramble to find excuses for expense report fraud and other fraudulent transactions.

Require Employees to Take Mandatory Vacation Days

Employees who commit fraud may not take vacation so that nobody uncovers their illegal actions while they’re away. Mandatory vacation allows someone else to work in their place, giving you a chance to detect fraud while they’re not around.

Rotate Employee Job Functions

You don’t want somebody doing the same thing for a long time with no oversight. Rotate employees so that nobody has a chance to settle in to regular fraudulent behavior without a chance that the next person could discover the offense.

Have Bank Statements Sent to the Owner’s House

Regardless of whether or not you look at the bank statements, sending them to your house gives employees the perception that you’re closely analyzing them. That alone may discourage potential fraud.

Install Video Cameras

A well-placed video camera may catch acts of fraud. Even cameras that don’t work can help prevent fraud, as their presence alone can act as a good deterrent.

Limit Computer Rights

Too much access can provide too much opportunity. Limit computer rights so that employees aren’t able to dig into information or systems that they don’t need for their job functions.

Review Your Vendor List

Employees may set up fake vendors in order to cover up fraud. Review the list to uncover questionable vendors that may be linked to vendor fraud.

Conduct Surprise Audits

A regular audit will allow you to know where your business stands. By making it a surprise audit, potential fraudsters won’t have advanced notice to cover up their tracks before you conduct an audit.

Establish Third Party Hotline for Fraud Tipsters

While audits are helpful, the majority of fraud is usually discovered through tips or by accident. Set up an anonymous tip hotline so that employees can offer up helpful info without the pressure of being associated with the fallout.

Obtain an Employee Dishonesty Insurance Policy

You’ll want some insurance in case an employee does commit theft. Employee Dishonesty Insurance can help you potentially recoup some of the losses if an employee does indeed commit fraud.

Internal Controls for Your Business

Every company is different so certain internal controls may work better than others for your business. Still, these are great starting points to help you protect your business from fraud.

Of course, knowing about internal controls isn’t enough to help prevent fraud. It’s important to actually put these controls in place and enforce them. If you need help setting up internal controls or need someone to review yours to see how tight they are, Apple Growth Partners can help. Contact us today to have our audit & assurance experts consult you on what changes you should make to protect your business from fraud.