Internal Controls You Can Implement To Prevent Fraud
Business owners who are victims of internal fraud or embezzlement are usually victimized by trusted employees or family members. Generally, the person committing the fraud is someone who has worked for the business a long time, a friend, or a family member the business owners and managers feel they can trust because of the long standing relationship. Every business should have good internal controls to limit exposure to theft. Below are some things business owners can do to protect their assets.
- Check signatures: All checks should be signed and mailed by someone other than the person preparing the check.
- All mail should be received by someone other than the person processing payments or paying invoices.
- All bank statements should be opened and reviewed by an owner. Often they are mailed to the owner’s home address. When reviewing the statement, review the check image for appropriate signatures and the validity of vendors.
- Bank reconciliations should be prepared by someone other than the person recording accounting transactions and reviewed by management.
- Sales and accounts receivable collections should be reconciled to deposits.
- Accounting employees should be required to take annual vacations. Often embezzlement is discovered when the employee is away from the office and is not able to cover up issues that arise in their absence.
- Businesses should take periodic inventory counts to ensure amounts are being sold legitimately.
- All fixed assets should be verified against depreciation schedules to ensure items are not disappearing.
- All new employees should be subjected to a background check and credit check. Employers should consider updating background checks and credit checks for employees.
- Management needs to have the ability to monitor all email accounts, the ability to log in to all workstations, voice mails, etc. Employees should understand these are company accounts and management has the right to monitor these resources.
