Most of us are aware of the US scandals regarding the “missing Madoff Millions” earlier in 2009.  The scandal particularly underlines the danger of thinking you know someone and, in consequence, perhaps not being as careful as you should be.

Of course, fraud isn’t just confined to large companies.  It can occur in the smallest of businesses, even where there are only two partners running and working within the business.  The risks escalate as you appoint staff, and for these reasons it’s important that you have sufficient procedures and controls within your business to prevent fraud happening.

Often, small business owners don’t find out about fraud and theft, until it’s too late.  Very few businesses are able to fully recover from an internal theft.  Having a good set of internal controls means that you can focus on what you do best, building your business.  With that in mind, we’ve listed below a checklist that you can use within your own business to ensure that your controls are up to scratch and to minimise the chances of fraud taking place.

Your 10 step checklist to reducing fraud and theft in your business

1. Set an appropriate ethical example for employees to follow.  Treat them with respect and fairness
2. Ask your employees to identify ways in which someone could commit fraud at your company and ways to avoid it
3. Develop a code of conduct that prohibits employees from committing acts of conflict of interest etc.  Ensure all employees and suppliers are aware of it.  Consider having key employees provide annual confirmation of their compliance and have a clear company policy on time and expense reporting.
4. Adopt a “trust but verify” code.  If you only need one bookkeeper, conduct careful background checks before hiring.  Take note of employees who appear to live substantially beyond their means.
5. Verify the credentials of all new vendors, before they are authorised to supply the company.  periodically review vendors to identify improperties.
6. Make sure all disbursements and expenses are properly approved
7. Protect yourself against cheque alterations by adopting electronic transfers for large payments, use direct debits for payroll and place a financial limit on cheques.
8. Review original bank statements before your bookkeeper does.  Keep an eye out for unexpected overdrafts or balance shifts
9. Make sure bank statements are correctly reconciled every month.  Ask that your accountant undertakes a periodic review of the bookkeepers work.
10. If something seems odd – it probably is!!  You need to consider the possibility of fraud.