Last month, the Federal Trade Commission (FTC) announced “Operation Main Street: Stopping Small Business Scams,” a partnership between federal and state authorities and the Better Business Bureau. The initiative supports what fraud experts have long known: small businesses can be easy targets for scams because they do not always have the staffing or financial resources to implement fraud-prevention programs. But even small businesses with limited resources must protect themselves.
Get some help
Private companies are not required to have annual audits, but your small business can still work with your accountant to determine where you might be at risk. They can train you to recognize the warning signs and help you reduce opportunities for fraud by, for example, segregating duties in your accounting department.
Periodically ask your accountant to review your receipts and disbursements with a focus on uncovering irregularities. In addition, if you have inventory that could tempt thieves, ask your advisor to verify inventory counts and observe inventory procedures for potential loopholes.
Take action of your own
One area where many small businesses fall short is in conducting background checks on potential employees. Check all work references and consider running criminal background checks. Workers with a history of occupational theft often seek jobs with small businesses because they know pre-employment screening likely will be minimal.
Even if you do not have a large enough staff to implement strict segregation of duties, you can still establish oversight procedures that allow you to understand and verify financial information. This might mean reviewing bank statements before they go to your bookkeeper and reconciling them yourself every month. And regardless of how much you trust your employees, set a dollar limit on the checks they can write without authorization. Also, use direct deposit for payroll to protect against check alteration.
Treat employees fairly
Even though it is important to establish controls, do not overlook the value of treating employees fairly. Many employees rationalize fraudulent activities because they feel underpaid or underappreciated. Make sure your pay scale is competitive by comparing it with prevailing wages in your area. Also take employee complaints — particularly if they are about possible illicit activities — seriously.
Contact us for help implementing a simple but effective fraud prevention program, and for more information on the FTC’s small business antifraud initiative, visit ftc.gov and search “Operation Main Street.”