Deter and Detect Fraud in Your Business
Posted on April 29, 2016

It’s unfortunate but it happens, people steal. Oftentimes it’s not because they are bad people. Many times they may face financial hardships and if internal controls are not set up to deter them, it makes it that much easier. This month we will discuss seven internal controls to deter and detect fraud.

1.) Implement a system of checks and balances so that no one person has control over all the parts of a transaction.
-Require purchases, payroll, and disbursements to be authorized by specified person.
-Separate handling functions from record keeping functions.
-Separate purchasing functions from payables functions.
-Ensure the same person isn’t authorized to write and sign a check.
-Endorse or stamp checks “for deposit only” and enter checks on a list prior to turning them over to the person depositing the checks.
-Require approval by supervisors for timesheets prior to payroll processing.
-Have paychecks be disbursed by a separate person other than the one recording and processing payroll.

2.) Reconcile bank accounts monthly.
-Reconciliation performed by person without transaction or check signing abilities.
-Examine cancelled checks to ensure vendors are legitimate, the expenditure was business related, and authorized person signed it.
-Examine bank statements to ensure checks and cancelled checks are not out of sequence.
-Initial and date bank statements that they were reviewed. Save and file statements.

3.) Restrict use of credit cards and verify all charges to credit card and bank accounts to ensure they are business related.
-Limit the number of business credit cards and users.
-Establish written policy that cards are for business use only. Inform employees of appropriate use of the cards and appropriate purchases.
-Have employees submit original and itemized receipt.
-Reconcile and review monthly statements.

4.) Ensure business assets are only used for work related functions.
-Review expense reports, credit card charges, and telephone bills for business related activities.
-Maintain vehicle logs with mileage, purchase of trip, and employee name.
-Maintain equipment list and periodically reconcile list with equipment inventory.

5.) Safeguard petty cash and other cash funds.
-Limit access to petty cash.
-Require receipts for all petty cash disbursements.
-Reconcile fund prior to replenishing it.
-Keep petty cash fund balance to a total that will require monthly replenishment.

6.) Protect checks against fraudulent use.
-Store blank checks in a locked drawer.
-Prohibit checks written to “cash”.
-Deface and retain voided checks.
-Require two signatures on checks written above a specific amount.
-Mark invoices as “paid” with check number when checks issued.
-Require supporting documentation with checks prior to signature.

7.) Protect cash and check collections.
-Centralize cash receipts.
-Reconcile cash receipts daily with supporting documentation.
-Perform random, unannounced cash counts.
-Issue receipts for cash.
-Require all cash and checks received be recorded and deposited in a timely manner.

It’s easy to get into a habit of doing things in your business a certain way.  There may be areas making you vulnerable to fraud and theft that can be easily fixed.  I hope these suggestions are helpful to your business!



Jordan Ilderton