Business Owners Beware of Fraud

Once a month I attend a meeting of business owners at Busey Bank, hosted by Busey and Charlie Rose of Funnls, LLC, called Innovative Mornings. It is an opportunity for us small business owners to get together, and hear a presentation or two to help them in managing their small business.

This past month we heard a great presentation by Julie A. Flaherty, Assistant Vice President with Busey Bank, regarding the many ways that fraud can occur in a business setting and the need to be vigilant on a daily basis. While the space of this newsletter does not allow me to cover all of the areas she addressed, I would like to point out a couple of areas that I believe small business owners continuously neglect.

Unfortunately, one of the most common areas of loss for fraud is internal theft by employees. Now, we all know that it is easy for a dishonest employee to skim out of the cash register. However, the amount they can take is minimal compared to some of the internal frauds that happen in businesses, amounting to tens of thousands and even hundreds of thousands of dollars. The common thread when that happens is a result of an employer trusting an employee to handle everything, from not only cutting and signing the checks, but also, doing the reconciliations.

If you are doing that, you need to stop that process immediately and there needs to be a dual control system where the person who is cutting the checks is not the same person who is writing the checks. If you do not implement such a system, don’t be surprised down the road if you suffer losses. Julie mentioned that it often happens with a trusted employee only taking a small amount to cover a bill they need to pay at first, and then it just grows from there.

While Julie provided many “Best Practices” to follow, I am going to list just my TOP TEN I gleaned from her presentation:

1.) Document Security Procedures and follow them every day
2.) Periodically Audit to make sure the procedures are being followed
3.) Implement a dual control system
4.) Segregate Duties (originator and approval functions)
5.) Review account activity daily [you only have 48 hours to object to an ACH transaction]
6.) Physically secure check stock/printing equipment and have limited employee access
7.) Set up a call back from your bank for transactions over a certain limit
8.) Review your hiring practices and background check policies
9.) Implement dollar limits on employee transactions
10.) Report discrepancies immediately

If you have more questions on business financial security issues, you may contact Julie A. Flaherty with Busey at 239-689-7101.