While every business owner would like to believe that all of their employees are honest and trustworthy, the unfortunate reality is that fraud costs Australian businesses an estimated $6 billion each year, according to a 2011 study by the Australian Institute of Criminology. So as the saying goes, while you can hope for the best, it is a good idea to prepare for the worst. With that in mind, here are our five tips to help reduce the possibility of fraud in your business.
- Create a separation of duties: by separating control over assets from the accounting for those assets, you avoid a situation where one person can receive or dispose of assets (including cash) and incorrectly record the transaction to keep the profits for themselves. With the increased use of software in business, this separation should extend to IT services. Sales, credit control and IT should all have only limited and specific duties and authorisation to enter/alter records.
- Ensure proper authorisation of transactions: an extension of the separation of duties is ensuring the proper authorisation of transactions. Employees may be given authorisation to approve transactions under specified limits, but for larger transactions, an additional approval should be required. This will avoid a situation where large transactions could be undertaken without management’s knowledge.
- Keep accurate records: accurate records for transactions will reduce the risk of fraud by providing clear evidence in a timely manner. The process must by simple enough that it is clearly understood by all involved, and followed accurately on a consistent basis. Things like consecutive numbering of invoices, purchase orders and receipts will restrict the opportunity for fraud via additional transactions being partially recorded to hide evidence. There should also be a clear process providing transfer of records from individual departments to the accounting department to provide an additional layer of oversight and improve the business’ overall recording processes.
- Maintain physical control over assets and records: in addition to accurate records of initial transactions, management/ownership needs to maintain sufficient control over assets and records in an ongoing manner. Unprotected assets can be stolen, while unprotected records can be adjusted at a later time to cover up potential fraud activities.
- Undertake regular independent checks: while following the first four tips in this article will dramatically reduce the opportunity for fraud within your business, undertaking a regular external audit will allow for any inconsistencies to be detected and corrected as soon as possible. Fraud often takes years to uncover, during which time the cost to the business can skyrocket. Any activity that cuts that time and cost down is well worth the effort!
By Jennifer Lowe