Let’s be clear up front. Everyone is innocent until proven guilty, and the best way to stop fraud is to prevent it. Setting up proper controls is the number one tried and true way to keep fraud from happening. What exactly does this entail? The best option is to hire a professional to help you set up your controls, find weak spots, and shore them up.
This isn’t always possible for small business however, and that leaves them wide open for fraudulent activity from within. What then?
Understanding the Fraud Triangle
The fraud triangle theory is the idea that fraud is most likely where the perfect storm of circumstances exist. The triangle is composed of pressure, opportunity, and rationalization. The pressure comes from outside circumstances which most often take the form of a desperate need for money, or sometimes simply greed.
Other times is may be a sick child, bills that cannot be paid, or some other life event. As an employer, you have no control over these things other than to pay your employees fairly. Sometimes this isn’t enough.
Rationalization happens within the culprit. This is where they convince themselves that committing the fraud is really okay. They may tell themselves they are just borrowing and will pay it back, that they deserve what they are taking because they are underpaid, or any number of other things to convince themselves that what they are doing isn’t wrong.
What about Opportunity?
The only real factor of the fraud triangle that a business has any control over is opportunity. If the opportunity is gone, there is no third point for the triangle. This is where controls come in. Accountability, review, and sign off procedures are just a few of the things that can be done to remove opportunity. The goal is to ensure no one person is in charge of the money through an entire process.
What Does this Look Like?
Here is one example: Whoever works the cash register closes out their drawer at the end of the night. They should not then be the one to turn around and make the deposit. Another person should count the deposit, check it, and then someone else actually take the money to the bank after counting and checking it themselves. Each step of the process should initialed by the one completing it, with a date added so if there are any discrepancies they can be traced.
Biz2Credit can help you with your financing needs while you focus on getting your fraud controls in order. Our network of lenders offers small business financing products ranging from startup loans to lines-of-credit, and everything in between. Visit Biz2Credit.com to start the process or find out more today.