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How can California businesses prevent internal fraud?

Every business with employees has to confront the possibility of internal fraud. When this kind of illegal activity is discovered, business owners can find themselves in time-consuming litigation that distracts from what should be their main priority: growing the business.

According to the International Foundation for Protection Officers, about 75 percent of workers have stolen from their employers at least one time. Moreover, roughly half of those individuals end up stealing again. So how can Encino business owners nip internal fraud in the bud?

The first step in preventing internal business fraud is to identify the potential risks. How do employees find ways to steal? Here are some of the typical ways bookkeepers and accountants can gradually shave off money from company accounts:

  • By switching company account numbers for personal account numbers online, paying off personal debt or bills with company funds
  • Creating fake vendor information and making payments on false invoices
  • Or filing false receipts and putting company checks into their own accounts

To prevent this kind of fraud, business owners have to start with the hiring process. Many small and medium-sized businesses skip background checks, especially if an applicant has been recommended by another employee. But the risk of not doing background checks is too great, considering how skilled some fraudsters are.

If it's possible, business owners may also want to divide banking and accounting tasks among multiple employees. You can give one person the job of opening the mail and logging invoices; give another person the job of approving payments; and give another person the task of signing checks, making deposits and calculating bank statements. This creates a system of checks and balances.

It is also important to keep the company's legal papers under lock and key. That way potential fraudsters can't review information that could allow them to create a fake bank account.

These are just a few ways business owners can prevent employee fraud. To learn more about damage control and risk management, please stop by our Encino business law site. Our firm helps small and medium-sized corporations with a variety of business services.

Source: Smart Business, "How to protect your business from internal fraud," Nov. 1, 2012

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