Maria Arnedo
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8 Tips To Keep Your Small Business Safe From Fraud

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Fraud comes in different forms, from scammers who bilk small businesses to employees who steal from their employers. Since the beginning of the recession in 2007, fraudulent activity against small business has increased, as well as the amount of money lost to fraud.

Between losses due to fraud and lost earnings due to the economic turndown, small business owners are facing increased pressure to remain profitable, and in business. Here are eight tips to keep your small business safe from fraud:

1) Stay Vigilant

As obvious as it sounds, many small-business owners do not remain vigilant to fraud. Chalk it up to spending too much time away from the office or just being too trusting, fraud prevention requires both monitoring the workplace and the workforce through continually updating inventory controls and record-keeping systems.

2) Have a Clearly-Written Policy

Small-business owners should supply a crystal clear written definition of fraud in the workplace and outline what reasonable and fair actions managers should take if fraud is suspected. All employees should receive a personal copy of the policy, as a stand-alone document and as part of a procedural handbook or employee manual. The employer should keep copies of the policy signed by all employees, and management must follow through on enforcing the policy violations.

3) Conduct a Background Check on Every Prospective Employee

While requiring a full background check for every new employees will generate additional expenses for the business, the cost of a background check is cheap insurance against a potential thief who could end up costing you thousands in losses. Online public records searches in conjunction with standard credit records can offer insight into a potential employee.

4) Always Check References

Before hiring a new employee always request both personal and professional references. As reported by CareerBuilder, almost three out of every ten employers have found a fake job reference and 62 percent of past employers did not say favorable things when contacted about a candidate. Still, most employers do not bother to check an employee’s references before hiring. Don’t be one of them. Also, contact any college to confirm educational information.

5) Watch for Behavioral Changes

Some small-business owners believe they can usually spot a scam or fraud when “something doesn’t feel right” or a long-time employee’s behavior changes. This includes an employee who begins avoiding eye contact or starts acting nervous for no reason. Unfortunately, these behavior changes aren’t always a good indication of a fraudster. However, if your employee starts adding or deleting steps in the company’s normal business process it should raise an eyebrow. Here an employee may know precisely where the company’s weakness in systems controls are and is trying to take advantage of it.

6) Internal Controls

Internal control systems should not be put in the hands of a single employee. Always separate the duties involving accounts payable and receivable, accounts reconciliation, bank deposits and payroll, so no one person can fudge the books. The business owner will likely perform some, or all, of these tasks if the small business has just a few employees. However, regardless of how the business responsibilities are divvied up, an external CPA should always review all financial records and systems controls each quarter.

7) Safeguarding Financial Data

The security of bank records, checkbooks, stock certificates and petty-cash funds should be a top priority. Instead of leaving these in the custody of the bookkeeper or office manager, it is best for a small business to leave these items in the physical custody of two people to ensure blank checks don’t go missing or petty cash doesn’t disappear. As a business owner you should make frequent, but not regularly-scheduled, inventory checks to see that all is as it should be.

8) Train Employees to Watch for Fraud

As a business owner you should see that all workers stay on the lookout for both internal fraud and external scams. Loss-prevention experts agree that having well-trained and alert workers is important to spotting theft and fraud. Have employees check each other’s work and cover during breaks. If they hear of or notice anything suspicious coming from outside the company they should notify the business owner or their supervisor without delay. As the saying goes, it is better to be safe than sorry and employees will typically embrace being given the responsibility to help you prevent fraud.

Jessica Kane

Jessica Kane is a professional blogger who focuses on personal finance and other money matters. She currently writes for, where you can get order checks online.

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