When you run a business, you hope that your employees will take pride in the work they do for you. But even the best bosses can find themselves with unscrupulous workers. And financial fraud in your business can undermine everything you’ve built over the years.
Paying attention to your bottom line includes taking note of details that could indicate dishonesty or even illegal behavior. For help with tracking and accounting for your business financials, reach out to Fisher Bookkeeping. Our expert team offers full bookkeeping services tailored to your needs.
Every business owner would like to think that fraud won’t happen to them. And some owners assume that it only happens to mega-corporations, like Enron.
But fraud is a common source of financial loss in companies of every size. The Association of Certified Fraud Examiners (ACFE) reports that globally, companies lose an average of about 5% of their revenue to fraud each year. This percentage amounts to trillions of dollars in lost money, and the perpetrators could be customers, employees, or executives. And this 5% falls heavily on specific businesses, not all companies, costing the impacted businesses millions.
Just because a company isn’t big enough to have shareholders and stock options doesn’t mean it won’t experience fraud. Fraud not only happens in any size company, but it’s particularly devastating to small and mid-sized businesses. In fact, per incident, companies with fewer than 100 employees suffer almost double the financial loss of bigger firms.
Fraud comes in many varieties, for example:
Any person working for or accessing your company has the potential to commit financial fraud in your business. And as you grow and scale, the potential for mishandling of the money grows, too.
Let’s look at five red flags that you, as the owner, should be aware of in your financials and employee behavior.
If you follow a Profit First method of accounting in your business, you are looking at bank accounts regularly. And even if you don’t follow Profit First, you probably see your statements each month, at least.
Pay attention to significant changes or inconsistencies in your accounting reports. For example, is there an employee who suddenly is having a lot of cash transactions? Or is there an unexplained surge in their expense book expenditures? Does a mostly inactive account suddenly have a flurry of activity?
Be faithful about looking through your monthly closing reports and examining your 12-month rolling comparison. These habits will help you spot financial fraud concerns.
Businesses have to have a chain of command, and your employees must be willing and able to show their work and progress to supervisors. And they should be able to do so fairly quickly.
If you have a worker who stalls when you ask for updates or reports or is secretive with their work or computer, you may have a problem. Most business data breaches, intentional or not, are due to an employee. So it’s vital that you have security measures in place for your employees’ activity.
Ideally, multiple employees are responsible for any given job or process. In fact, making sure that a task has more than one employee assigned to it is a key piece of avoiding the so-called Fraud Triangle.
If your employees use a company car, they will likely deviate from the work route occasionally.
Driving a mile or two off the path is common. But routinely racking up miles on their personal time costs you money in vehicle depreciation, repairs, and gas.
And if you have team members who drive personal vehicles for work, pay attention to their expense books. If your staff submits for mileage reimbursement that doesn’t match the work demand, there could be fraud.
Do you have an employee who parks in the customer area or takes extra time on every break?
A worker who openly disregards basic company rules is much more likely to take advantage of chances to line their pockets.
Loyal employees far outnumber the ones who cheat or steal, and many will take action to protect their employers. In fact, small businesses learn about fraud due to employee tips close to 30% of the time. For bigger companies, that number is over 40%.
No matter the size of your operation, be sure to have procedures in place that allow whistleblowers to report without fear of punishment. This one step is crucial to any size of a company.
There is no way to guarantee that you’ll never be a victim of financial fraud in your business. But you can take steps to protect your revenue and reputation, including:
You don’t need to handle every aspect of your business alone, so consider the benefits of outsourcing your bookkeeping. The experienced staff at Fisher Bookkeeping can help you keep your business finances healthy and in order.
As Profit First coaches, we can also help you grow your profit so that you enjoy the fruits of your labor sooner rather than later. Contact us today for a free consultation. We have offices in Portland, OR, and near Lexington, KY, to help businesses all over the country. Reach out to us today!
Barb is the CEO of Fisher Bookkeeping, an outsourced bookkeeping consultancy that provides small businesses with a full-service financial department. Her favorite aspect of work is to break down the accounting to meaningful bits, so entrepreneurs can make a powerful difference in their own business. She's also a power lifter (squat: 215, DL: 270).