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Enron brought to light a “trend” in business across the world.  The new reality was that fraud became a big part of daily operations.  But was this a new trend?

The real reality is that fraud has always been a problem in business… and it always will be (in fact, we’re all sinners and love money and power).  In fact, fraud is happening right now, and will be divulged and discovered in the news at a later time.  And when it’s discovered, we may come to the incorrect conclusion that “fraud is on the rise.”

In my work with attorneys assisting them in litigating white collar crime, I find a lot of the prevention that could have been implemented in the business included the basic common-sense steps below.

You need to implement these very basic procedures in your business to make sure fraud is not happening right in front of you (if you can think of more leave them in the comments):

1.  When hiring the financial manager in your business, perform a simple background check and have the state law enforcement agency in your state (it’s the SLED in South Carolina) check that individual out for a record of financial mistrust.  This could go a long way to prevent hiring the wrong person.

2.  As the owner of your business, delegate as much as you can, but try to keep the bank signature authority in your hands, and make it a policy to review the cash leaving the door by signing all checks.

3.  Similar to #2 above, if you don’t have time to reconcile the bank accounts in your business (which you should), then at least have the bank statement delivered to your home, or some other safe delivery location.  That way, you can at least look through the cleared checks to see if the payee in QuickBooks matches who really received the check, and ultimately got the cash.

4.  Keep important financial records and passwords locked up and secret: your online bank log in information should be kept to yourself, lock up your blank check stock, and keep your paid bills safely from employees’ view.

5.  Another popular method thieves use to steal cash from your business is through payroll.  Outsource this important function to have an outside independent party calculate and pay your employees.   This will also take the burden of a compliance-driven nightmare off of your shoulders, and allow you to focus on running your business.

6.  Keep your accounting records organized and in some type of electronic system (e.g. QuickBooks).  Many business owners fail to focus on this area because it’s boring and doesn’t involve the fun stuff.  But if you know what you should have, things will jump out more when things don’t look as they should.

7.  Hire professionals.  There are tax, accounting and forensically-trained experts that can assist you in developing internal control systems and ways to prevent fraud in your business.  They are worth their money, and their fees seem small AFTER you’ve been robbed.

8.  Build relationships.  Prevention is the best deterrent to fraud.  Prevention can happen daily by maintaining relationships with your employees, bankers, accountants, vendors, customers, etc.  People are less likely to steal from someone, and more likely to assist you, when they trust you and know that you are there to serve them.

There are so many more.  Don’t become a statistic, and say, “that will never happen to me.”  Put simple operational efficiencies and protections in your business so you can avoid difficult and costly fraud.  Read more about it here.

Thanks, Jason M. Blumer, CPA, CFE, FCPA

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Since our firm provides fraud and forensics services and litigation support to the legal community, I thought these links might be interesting to our clients:

1.  Small businesses face more fraud in the downturn – GoSee

2.  Forensic audits are in demand in a struggling economy – GoSee

3.  Check out the Fraud Enforcement and Recovery Act, bringing mortgage lenders under the same scrutiny as banks – GoSee

Thanks, Jason M. Blumer

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