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Top 10 Fraud Prevention Measures to Protect the Value of Your Business

04/11/2015


During Edmonton's Small Business Week hosted by the Edmonton Chamber of Commerce, I was asked to speak on the subject of fraud. I presented Fraud in Canada: A View from the Trenches. As a forensic accountant and fraud expert for 20 years, I know all too well how damaging fraud is to business owners: financially, mentally, emotionally. After all, fraud can only be perpetrated by a person in a position of trust. I wanted to share with all business owners / managers what I believe are the top 10 fraud prevention measures to keep your business alive, thriving and profitable.

10. Control access to what makes you money

  • Do you have a patent? Lucrative customer list? Uniquely modified equipment? Special techniques? Intellectual property fraud is relatively easy to commit and tough to litigate. Protect your knowledge assets with access limitations and user alerts.

9. Regular financial reporting package

  • Executive or the Board should receive a consistent, periodic reporting package of financial information, that they themselves design to include what is important for them.
  • Packages should include standard reports (such as budget variance reporting) and financial statements.

8. User access controls

  • Unique usernames and passwords should be created for all individuals with access to the organization's systems. Passwords should never be shared.
  • Passwords need to be changed on a regular schedule.
  • Limit access to payroll and cheque production.
  • Online banking or accounting software access needs to have unique access identifiers for each user.

7. Control access to funds

  • Limit access to credit cards, procurement cards and bank accounts.
  • Develop and follow policies on employee expenses submitted for reimbursement and be sure to monitor overtime claims.
  • Reimbursement should not be processed without a review of receipts or supporting documentation.
  • Establish a relationship with your banker that does not involve your employees.

6. Implement a fraud and ethics policy

  • A policy should be developed and implemented regarding the expectations for employees and volunteers, including consequences of violation.
  • Increasing the perceived likelihood of detection and intended consequences of breaches is an effective deterrence method.​

5. Conduct background checks

  • Background checks should be conducted on all employees. All references provided should be contacted and a check for known criminal activity performed.
  • Academic achievements should be verified.

4. Reconcile bank statements monthly

  • Bank statements should be sent directly to the person responsible for reconciling them or stamped 'received' in the mail room, but not intercepted by anyone with banking capabilities.
  • All reconciling items should be listed and investigated. Bank reconciliations should be reviewed by another individual once completed.
  • Reconciliation should not be performed by anyone with direct access to banking activity.

3. Documented procedures

  • Establish day-to-day procedures for:
    • cash handling and banking
    • accepting donations
    • creating cheques
    • accounting entries
    • reconciliation
    • processing payroll
  • These procedures must be documented and tested for compliance from time to time.

2. Dual signing authorities

  • Implement two signing authorities for all cheques if you can. Reconcile all payments with a vendor invoice or other paper supporting document.
  • Do not sign cheques without appropriate support.
  • Do not, under any circumstances, sign blank cheques.
  • Cheque creators should not be cheque signers.

1. Segregation of duties

  • Ensure no single individual is responsible for handling cash, issuing cheques and reconciling the bank statements.
  • Wherever possible, segregate banking activities from accounting / financial reporting activities. When it is not possible, add a layer of peer or management review.​

Whether you are looking to feel secure that your business is as profitable as it can be, preparing it for transition to a family member or selling to a new owner, ensuring that you have proper fraud controls in place will go a long way in adding value to your business.

To learn more about anti-fraud practices, please contact Lisa Majeau Gordon, CPA, CA∙IFA, CFE, CFI, CFF at 780.453.5375 or [email protected], or your local MNP Business Advisor. ​​