Tough Times Series: Guard Your Small Business Against Fraud
The economic recession may not be the only thing posing a danger to your small business.
According to a 2009 Wall Street Journal report, economic downturns can lead to increased employee fraud as more workers struggle to make ends meet. Small businesses often are most exposed to this type of fraud because they tend to lack the proper internal controls to prevent it, according to the report.
However, you can take measures to protect your small business. This means making sure you equip your business with the internal controls that many small businesses miss.
According to Neil Lerner, director of the University of Wisconsin-Madison Small Business Development Center, owners should have standard procedures for all financial activity that occurs within the business. "Make sure all employees understand what the [procedures] are," Lerner says. "You want to have some policies in regard to how cash is handled and who handles it, but then [also] what the expectations are in terms of it being deposited and in terms of payments being sent out."
The California Society of CPAs also recommends these business steps to prevent fraud:
Lerner also suggests enlisting your accountant's help to evaluate current practices. "A good accountant can give recommendations on how to improve business performance," Lerner explains. "Have your accounting firm more involved periodically to review internal controls, review documents to see if they suspect anything irregular, and help you perform audits."
If you suspect fraud, Lerner warns against confronting an employee directly. "Get a qualified attorney to help you figure the situation out and also do it in a way that would prevent legal entanglements with the employee," he says.
With the right protections in place, and the right experts in your corner, your small business can remain safe and sound. Consult with business specialists at your credit union for more help with handling your small-business finances.
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