Small businesses are disproportionately victimized by fraud, according to founder Rene Lacerte, and they need to adopt new ways to protect themselves.

In his session on “7 Ways to Protect Your Business from Fraud” at the 2013 Sleeter Group Accounting Solutions Conference, held here, serial entrepreneur Lacerte noted that 5 percent of business revenue is subject to fraud, and that the burden has fallen more heavily on smaller companies because they haven’t been able to afford the prevention tools that larger organizations can.

That doesn’t mean, however, that they can’t take steps to protect themselves, Lacerte said -- and that may mean starting close to home, since 77 percent of all frauds are committed by employees of the company being defrauded. “These are people you trusted -- you hired them, you thought they shared your values,” Lacerte said.

One critical key to protecting a business is to remove one leg of the classic “Fraud Triangle” that enables employees to commit fraud. Two legs -- financial pressure on the potential fraudster, and whatever factors enable them to rationalize away the criminality of the act -- are largely beyond an organization’s control, but the third leg, the opportunity to commit fraud, offers them many opportunities to make fraud less likely.

Companies should start by identifying the weaknesses in their financial processes and structures that make fraud easy, such as a lack of internal controls, loopholes in business processes, or the easy availability of check stock on-site.

Then they should consider implementing some or all of the following:

  • Separation of duties -- so that no one employee has sole control of the entire process.
  • Manual controls -- so that fraud can’t slip by as part of an unmonitored process.
  • Limited access to accounts and the ability to make payments -- so that staff can’t manipulate systems they’re not supposed to, and so that you’ll know exactly who could have made potentially fraudulent entries or changes.
  • Require double signatures -- so checks can’t go out on the fraudsters say-so alone.
  • Get daily check reports -- so that frauds can be caught quickly.
  • Securely store check stock.

“Everything someone needs to steal money from your company or a client is right there on the check,” Lacerte noted, before adding that, while securing check stock was important, it would be far better to move beyond paper checks entirely. “Paper is one of the biggest problems when it comes to fraud. You have to go paperless.”
He explained that electronic invoicing and payment solutions like his own and others not only eliminate the weak spot of having check stock in the office -- they also offer many opportunities for limiting access, monitoring payment activity, enforcing payment controls and separation of duties, and more.

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