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Small business fraud prevention LaDonna Sinning, a Certified Fraud Examiner and partner at Arledge and

Small business fraud prevention

LaDonna Sinning, a Certified Fraud Examiner and partner at Arledge and Associates, PC, provides tips for preventing small business fraud. Q: Are there some basic processes and procedures that all small businesses should have in place to prevent fraud? A: The first step that every business owner should consider is ensuring a separation of responsibility between access to assets and accounting for them. For example, if Employee Smithcollects monies and/or disburses payments, then Employee Jones should review/reconcile the books, bank statements, the cash register or receipts reports. This simple segregation of duties makes it more difficult for an employee to conceal theft. Q: But my employee who handles the money has worked for me for years. Everyone loves her. I’m safe with her, right? A: Actually, these are often the very employees who defraud businesses of the largest sums of money. Long-time employees who have developed high levels of trust within the organization are most able to steal significant amounts. Even grandma may steal if she has a gambling problem or to help a seriously ill child. Better safe than sorry is a good motto in these situations. Q: I’ll keep my eye on grandma. What other steps should I take? A: Set a high ethical standard yourself and enforce a zero-tolerance policy along with keeping open lines of communication with your employees. When an employee is stealing from you, it’s likely another employee knows or suspects the activity. In fact, most frauds are caught by a tip from another employee. You want to make sure your employees understand that you have high standards, care about their concerns, and take action when they disclose something to you. That action, of course, should first be to investigate. But if trust is broken with an employee, then the employment relationship should be severed. Q: Is there any way I can make sure I don’t hire anyone who will commit fraud? A: While you will often hear that you should prevent fraud by hiring the right employees, that is actually very difficult, if not impossible to do. Statistics show nine out of 10 employees who commit fraud are first-time offenders. While you certainly should run background checks on potential employees, these background checks are unlikely to prevent you from hiring a fraudster. Q: That is a gloomy prediction. But fraud is the exception to the rule, right? A: A recent study by the Association of Certified Fraud Examiners reports businesses, on average, lose five percent of revenues to fraud. Small businesses are hit disproportionately harder due to fewer fraud prevention activities. Think about that a minute, five percent of revenues. Can you really afford not to guard against fraud? LaDonna Sinning is a Certified Public Accountant, Certified Fraud Examiner and partner at Arledge and Associates, PC, an Edmond-based accounting firm. Arledge & Associates, PC is a recognized leader in the accounting industry offering practical solutions in the areas of tax planning, auditing, consulting, accounting advisory services and client accounting.