Bento For Business

5 Fraud Prevention Strategies for Small Businesses on a Budget

Preventing fraud may not be top-of-mind for most small-business owners, but accounting professionals understand that fraud is a real – and potentially costly – risk. In fact, the Association of Certified Fraud Examiners (ACFE) found in 2016 that the median fraud loss at businesses with fewer than 100 employees is $150,000 – the same as it is for businesses with more than 10,000 employees.

The implications are staggering. While a loss of $150,000 is never helpful, larger businesses can more easily absorb it and move on. For a small business, such a loss can be devastating.

So how can cash-strapped small businesses minimize their odds of being fraud victims? We spoke with a few experts who recommend the following low- or no-cost options.

1. Educate Yourself

Not sure what fraud actually looks like? Check out Diary of a Bad, Bad Bookkeeper, the best book on fraud I’ve ever read. It’s legitimately funny and is also an excellent way to learn how bookkeepers and other employees are likely to commit fraud.

For more insight on why employees steal and how to prevent internal theft, check out “Employee Theft: Why It Happens & How to Prevent It.”

Cost: $0 (Kindle) – $6.99 (paperback)

Time commitment: Varies

2. Make & Enforce Rules

Small businesses typically don’t have time to create a code of conduct. That’s likely why only 53.8 percent of them have such codes, compared to 91.3 percent of larger businesses. But it’s worthwhile to put together rules for handling finances.

Small business accountant Thomas J. Williams, EA, emphasizes the power of official documentation: “When your employees know that you mean business, they’re more likely to comply.”

It’s also essential to enforce those rules. Colleen Drennen-Pfaller, founder of A Slice of HR, recommends taking “swift and severe action” in the event of fraud. “This message will resonate in your organization,” she says.

Feeling ambitious? Visit a site like Formswift to create a complete code of conduct for free.

Cost: Free

Time commitment: A few hours upfront, then ongoing enforcement efforts

3. Automate Bill Payments

Williams notes that putting bills on autopay is an effective way to prevent fraud.

“Do not let employees have access to checks,” he recommends. “Use the bill-pay feature on your business bank account to send your payments automatically.” Further, make sure that the person who pays the bills is also the person who opens the mail. This eliminates a huge opportunity for fraud.

There are also several QuickBooks apps that help automate payment tasks. And if you’re ready to take security a step further, consider going completely paperless. Sites like Bill.com and Hubdoc offer this service, allowing you to track all your financial documents in one place.

Cost:

  • Bill.com: From $29 / month
  • Hubdoc: $20 / month (free trial available)

Time commitment: A couple of hours for setup

cash fraud employee

4. Hire Better

One way to prevent fraud is to avoid it by vetting employees thoroughly. The hiring process can be daunting for small-business owners, who have little time to spare and possibly no background in HR. But conducting a background check and calling references can save a lot of time and money down the road.

After all, the costs of fraud to a small business aren’t just financial. As Steven Wolpow, managing partner at accounting and finance firm Nusbaum, Yates, Berg, Klein & Wolpow, L.L.P., points out, “If the company’s profits are being diverted due to fraud, that means the company won’t be able to give employees pay raises, bonuses, and perks, which can be pretty devastating to a hard-working, motivated workforce.” In other words: one bad hire can cost you over and over again.

Cost: $29.95

Time commitment: Several hours / hire

5. Use Technology to Make Tracking Easier

Sometimes, giving employees access to accounts payable or credit cards is unavoidable. In those cases, Williams has a recommendation: “Use a third-party app that offers an approval process. It’s important to know that the money is going to legitimate vendors.”

Cards offered by Bento for Business allow business owners to control how much employees can spend, where they can spend it, and even what level of access they have to the online account, thanks to a newly introduced admin permission feature. The cards also have the advantage of not affecting a business owner’s personal credit.

Another handy app is ClockShark, which simplifies time tracking. It also helps prevent “buddy punches,” a kind of time fraud when employees punch in and out friends who aren’t actually present.

Cost:

  • Bento for Business: From $0 / month (60-day free trial available)
  • ClockShark: $20.85 / month + $4.17 / person (30-day free trial available)

Time commitment: Varies


About the Contributors

 

Colleen DrennenPfallerColleen Drennan Pfaller, MS, SPHR, is the Founder of A Slice of HR, a subscription services firm that provides custom plans to target the critical needs of small businesses at about the price of hiring an Administrative Assistant.

 

 

ThomasWilliamsThomas J. Williams, EA, is a tax accountant who operates Your Small Biz Accountant, LLC, a virtual boutique accounting practice.

 

 

StevenWalpowSteven Wolpow is managing partner at accounting and finance firm Nusbaum, Yates, Berg, Klein & Wolpow, L.L.P.. He is recognized by his community for his extensive knowledge and experience in the fields of accounting, auditing, and consulting.