As too many small business owners can attest, it’s not just customers who can try to cheat you or get something for nothing. Employees too can perpetrate all kinds of fraud and cheating schemes. This is a serious issue for any small business, because fraud can ultimately cause it to fold. That’s why fraud expert Charles R Whitlock wants the public to understand the most common types of small business fraud and the best ways to defend against them.
Check tampering occurs when someone acquires company checks and pays himself or when he alters a check that was already written. Either way, the end result is unauthorized funds paid to someone who doesn’t deserve them. Because many employees could have access to company funds, it’s very important to stay on top of accounting. When it comes to ways to protect yourself from check tampering, Whitlock recommends that you keep blank checks locked up and only allow limited access to one or two trusted employees. Keep track of all checks and account for them, including voided checks, and review bank receipts regularly.
According to Charles, the second most common small business fraud scheme is skimming. This simply involves an individual taking money owed to the employer before the money has been recorded on company books. The best example of this is when an employee makes a sale and pockets the customer’s money without recording the sale. In businesses with inventory, it should be easy to catch discrepancies between cash and total receipts at the end of each day. If something seems off, you can conduct an investigation and find out who did the skimming.
Billing and Reimbursement
What if your employee starts making payments to a shady vendor you don’t recognize? In that case, she could be submitting invoices for fictitious goods or services and paying to an account she holds. Another possibility is an employee who inflates the charges for goods or services from a legitimate company in order to pocket the difference. A similar strategy applies to employees who use expense accounts or reports to cover nonexistent expenses and keep the money. Whitlock has long emphasized the importance of signatures on all expenditures, reimbursements, and receipts for claimed expenses. Through diligence and good recordkeeping, you can foil at least some attempts at these three types of small business fraud.