Guidelines for Avoiding Small Business Fraud


The most important factor in the prevention and/or detection of fraud for a small business is cost efficient control. The tone at the top must be set. As an owner you should express your views to employees that fraud, in any form, is not acceptable. Here are a few suggestions to aid in this mission:

  • Encourage employees to make suggestions about ways to improve controls. By letting your employees know that you are looking for ways to prevent fraud, it is also conveying the fact that you are alert to the possibility of fraud occurring and could serve as a good deterrent.
  • Make an example of an employee found to have committed fraud, even if it is as petty as someone padding their hours. This will demonstrate that fraud will not be tolerated.
  • Require that all new vendors be approved by you, prior to checks being cut. You should review the listing of vendors on a monthly basis to ensure this procedure is being followed.
  • Establish mandatory vacations for all employees. By doing so, this can allow another individual filling in for that position to notice if anything improper is occurring.
  • If you, as the owner, do not sign checks, require that all checks over a certain dollar amount require your signature, i.e. $1,000.
  • Receive unopened bank statements directly and review the activity. Pay particular attention to the payees on cancelled checks and where wire transfers are going. By receiving unopened bank statements, it deters the possibility of an individual who is perpetrating fraud to alter the document. You can also obtain online access to your bank account and review electronically. It is also recommended that you restrict online capabilities to only yourself.
  • Do not allow expense reports to be submitted too long after expenses occurred because it allows too much time for the individual in a supervisory role to forget the details.
  • Receive and review unopened payroll reports directly to ensure there are no fictitious employees and that legitimate employees are being paid at their proper rate.

These suggestions are only a mere guideline to aid in the prevention or detection of fraud. They prove to be the least costly with regards to implementation. Remember, for controls to be effective, they have to be implemented and adhered to.