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Preventing Fraud in your Business

They see what personal expenses you are writing off. Take a proactive approach. Studies show that the more employees believe they will get caught, the less likely they are to commit fraud. Below are some practical tips for small business owners to reduce the risk of loss due to employee fraud:.

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Background checks and hiring practices themselves are not enough to protect your business from employee fraud. Our team ensures that our clients have preventative controls in place. Signature Analytics provides small and mid-sized businesses with the resources of a full finance and accounting team.

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We utilize a fractional accounting model so clients can effectively segregate accounting duties without having to hire additional full-time accounting staff. To learn more about how we can help ensure your business has fraud prevention , contact us for a free consultation. Employee fraud is more common in small businesses — Are you protected? As a small business owner, you probably think your business is immune to theft and fraud because: You know all of your employees, so this will never happen to you.

You are close friends with all of your employees, so this will never happen to you.

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Your employees are members of your family, so this certainly will never, ever happen to you. It should train employees to spot bad checks, counterfeit currency, and stolen credit cards and insure proper accounting. The policy should address the use of customer-provided information and the handling of vital customer data.

Inventory handling and tracking. A written inventory policy covers sales stock and company equipment. Pilferage is often an 'entry level' criminal enterprise. Contractors and employees engaged in this activity often perceive a weakness in inventory controls as an indication that fraud will not be detected. Put those procedures in writing and give them to employees. Contract and invoice reviews and procurement. Regular reviews of accounts payable invoices, purchase orders, and payments can eliminate various types of fraud.

It is important for small businesses to be able to verify that contractors have performed the work that they bill for -- before paying the invoice from that contractor.

Avoiding Cyber Fraud in Small Businesses: What Auditors and Owners Need to Know

These days, every business that keeps sensitive data -- whether about customers or employees or the company -- need to have written data handling policies. These policies should spell out who has access to vital information, passwords, account numbers, databases, etc. Document retention policies should include scheduled, mandatory shredding of certain documents containing employee information or corporate data. Use confidentiality agreements and non-compete agreements for key employees. Customer returns. Customer returns can be a significant source of fraud.

Since most state consumer laws require a posted customer return policy, it makes sense to develop a written return policy that will eliminate fraud risk, Lougovskaia says. Elements of your policy might include that you require returns to take place where the item was purchased, require a receipt, and do not issue cash refunds for credit card or check purchases.

There are ways of deterring fraudulent customer claims of accidents or incidents involving your business property. Retail establishments should consider installing video surveillance systems and having a handheld video camera ready in the event a customer falls on the premises to protect your business. If your business is not a retail establishment, you might consider requiring visitors to sign in and wear clearly identifiable badges. Tracking customer claims of injury via incident reports, and training employees to create reports immediately, cuts down on fraudulent injury claims.

Internet, e-mail, laptops, cell phones, and storage devices. Clearly defined policies need to establish that Internet access and e-mail remain the property of the business for business purposes. Eliminate all employee access to non-work e-mail and Internet sites, Lougovskaia says. Written guidelines addressing the use of business laptops, cell phones, and storage devices will reduce the possibility of critical corporate and customer data being lost or stolen.

Do not let the person initiating a purchase order approve the payment regardless of position within the company. Separate the functions of creating databases, maintaining databases and using the data. For example, the person responsible for generating payroll checks should not be entering employee data. Require separate confirmation and storage of inventory records away from the location of the inventory and rotate responsibility for taking inventory.

Assign administrative access to the business data, web site, intranets, and email accounts to different individuals. Sponsored Business Content. A worker may also ring up a portion of the sale and pocket the remainder.

Six Strategies for Fraud Prevention in Your Business

Skimming can also involve the theft of checks. For example, a spa customer pays for a facial with a personal check. The clerk never enters the transaction into the spa's billing system. Instead, she deposits the check into a fake business account she's opened in her name.


The theft goes undetected because the spa has no record of the sale. Cash larceny means stealing cash that has already been recorded on the employer's books. Larceny is more difficult to conceal than skimming because the stolen funds have been recorded in the employer's accounting system. An example of larceny is cash an employee steals from a cash drawer after ringing up a sale. The worker may try to cover his tracks by creating a false refund, voiding a sale, or altering or destroying the cash register tape.

Fraudulent disbursement involves the theft of cash for a purpose not authorized by the employer. As in cash larceny, the money has already been recorded on the employer's books. There are a number of steps you can take to discourage unscrupulous employees from stealing your cash.

One way to prevent skimming is to stop accepting cash. You can ask customers to pay for purchases with a credit or debit card. If this option isn't feasible, you can keep a close eye on your inventory. Shrinking inventory can be a sign that your workers are skimming cash.

10 Steps Business Owners Can Take to Prevent Fraud

Another tactic is to install cameras near your cash registers. Workers are less likely to steal when they know their actions are being recorded. You can help prevent cash larceny by making random checks of cash registers. The goal is to ensure the transactions recorded by the registers are consistent with the amounts of cash in the drawers. You should also institute a system of checks and balances by dividing up duties.

For instance, ask someone other than a cashier to do an end-of-day reconciliation between the register tape and the amount of cash in the cash drawer.