Tips & Best Practices for Protecting Your Small Business from Bookkeeping Fraud in Surrey BC
You see all too often in headlines and social media today of situations where a small business put too much trust into their bookkeeper or accounting staff. Theft and embezzlement in a business can take place over years before it is exposed with often devastating consequences for the business that may be too difficult to overcome in some instances. It is very difficult to eliminate all risks of fraud (both internal and external) so here are a few Tips and Best Practices that can reduce the threat of fraud to your small business.
1. Execute a Program for Risk Management
- You and your senior management team needs to be clear with all employees, consultants and outsourced services, that no types of deception or dishonesty will be tolerated. This can be implemented both verbally and with actions.
- Review your insurance protection every year to confirm that you are protected against external and internal thefts.
- Ensure that your bookkeeping or accounting firm is sufficiently bonded.
- Additionally, confirm that your bookkeeping or accounting firm are diligent about their hiring practices as well.
2. Trust is Good. Having Suitable Internal Controls as well is Better
As a successful Small Business owner, it is important to instill a feeling of trust with your employees and outsourcing services. Whilst this is great – it is still recommended to have adequate control structures in place that can verify your employees’ actions and intentions.
- Reduce fraud and error risks by allocating business functions to more than one person or department.
- As an example - have someone in charge of approving new vendors, another responsible for approving accounts payable invoices, another to write cheques/make electronic payments, approve hiring of staff, control pay rates, process payroll, reconcile bank accounts and credit cards, etc.
- If you don’t have that many staff to allocate all the different business functions to, split as many as you can to your relevant staff, i.e. try not to make one person responsible for all your business functions.
- All employees that you hire that will be involved with managing the books, accounts and records of a business should be screened properly.
- Check their employment records, references, address, credit and bankruptcy history as well as criminal and civil court records. Check them out on social media as well as this can give additional insights.
- Many employees caught in a fraudulent act are not always prosecuted, and as a result they simply move on to their next victim.
- A comprehensive background check will help you determine if your prospective employee comes as a high risk or low risk to your small business.
3. Know your Small Business Numbers
When you understand your small business finances, it is much easier to recognize an unexpected expense or balance sheet issue that could potentially be related to suspect activities by an employee or bookkeeper. Reconcile your balance sheet and review your finances and how they compare to the monthly budget. Follow these best practices:
- All bank and credit card statements should be Reviewed by You.
- If you get your statements in the mail, you as the small business owner should receive the unopened bank statements directly.
- If you have selected to receive them electronically, you can view them directly online and even set up notifications for large or irregular transactions.
- We Recommend Using the Accrual Basis of Accounting
- Reconcile your Balance Sheets Monthly.
- As a small business owner, you understand the importance of reconciling your bank account(s) on a monthly basis. It is just as important to reconcile all balance sheet accounts monthly. Ensure that transactions on the balance sheet are expected and normal, so that irregular items within these balances are not masking results presented in the income statement.
- Cash receipts should go through a business bank account.
- Whilst it may be easier to take cash out of the drawer to pay for petty cash, this creates an environment where funds can easily be misdirected.
- Securely Store all Books and Records.
- Ensure you close each financial period and lock-up records so historical transactions cannot be modified (this applies to both paper-based and electronic records).
- Securely Store all Cheques.
- If you are using paper cheques, ensure all cheques are accounted for by management.
- Utilizing electronic payment systems makes it more difficult to hide or destroy important documents.
- Have your books reviewed on a regular basis by a third-party accounting firm.
- Having this in place can act as a substantial preventive measure to fraud.
Unfortunately, fraud occurs more often than most small businesses are aware of. By being mindful, involved and utilizing the above steps, you as a small business owner can mitigate instances of theft occurring.
At Green Quarter Consulting - Accounting and Bookkeeping Services for White Rock, South Surrey, Langley and Surrey BC, we are here to help. We can assist with guiding you through some of the best practices discussed above and help you become more comfortable with your small businesses’ finances.
Contact us today at 778-791-2864 or 604-970-0658, let’s talk, or send us an email here and we will be in touch very shortly.
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