Lack of Internal Financial Control
Why do small businesses have the greatest share of fraud?
Lack of internal financial controls.
Five of the most common fraud schemes for small businesses are:
- Check tampering
- Billing fraud
- Expense reimbursement fraud
Of those who were convicted of small business fraud, 41% of the employees been with the business between 1-5 years.
Why is there such a problem with internal small business fraud? Too many small businesses let just one bookkeeper handle all the business’ accounting responsibilities, which many times is a family member or close friend.
The family member or close friend handling the accounting is most often the source of fraud for many small businesses because there are no checks and balances.
Reducing this risk of fraud is as easy as segregating the financial responsibilities between two or more professional bookkeepers, with a clear set of checks and balances in place.
For example, you can have one person approve expenses and invoices, another prepare checks, and the owner sign the checks so the receipt and payment cycle includes a series of checks and balances with no one employee responsible for the entire cycle.
This way, no one employee has complete control of every aspect of the business’ finances. If this is not practical for the business owner, then the business owner MUST personally oversee the bookkeeping work and possibly take on some of these responsibilities.
If you are in the Charlotte, Mecklenburg, Ballantyne, Matthews, Pineville, Lake Norman, or surrounding areas and are looking for part-time bookkeeping services, feel free to call me at 704-560-9318 or email email@example.com
Stay tuned for my article on Bookkeeping Mistake #4!