5 HIDDEN SIGNS OF FRAUD IN A SMALL BUSINESS

The year 2020 has disrupted the normal workplace, which is very challenging for small businesses. One area of major concern is that some employees may take this as an opportunity to start a fraudulent activity under the lack of in-person supervision. This problem is more heightened in the case of a lack of internal controls.

One of the biggest problems with small businesses is that the owners lack resources and expertise. As a result, most of the red flags are disguised as great work ethics. And instead of reprimanding the employee, you end up falling for their “hard work” that is just a front to cover up their crimes.

5 WARNING SIGNS OF FRAUD IN YOUR BUSINESS AND WAYS TO PREVENT IT

According to ACFE (Association of Certified Fraud Examiners), small companies and start-up businesses are more vulnerable to fraud because they usually have less anti-fraud controls as compared to big organizations.

To help you, we have put together the top 5 hidden signs of fraud that you may be overlooking in your company.

1.  FAKE INVOICES

An employee in your company might be creating fake invoices to pay “vendors” that only exist in your systems and not in real life. If you look closely, you can see that these fake invoices and payments are linked to their personal bank accounts. As a business owner, you might fail to see this problem because the invoices are either too small or are legit.

Pro Tip: This type of fraudulent activity is hard to detect; therefore, if you suspect that something is off, then contact one of the top audit firms in Dubai ASAP to review all the transactions and prevent something like this from happening again in the future.

2. MODIFIED BANK STATEMENTS

Most small businesses are vulnerable to fraud from their accounting and finance departments. This can especially be seen in companies where bank statements and other financial records directly go the person in charge of accounting and are not scrutinized by the owner.

If the same person is receiving and recording the financial records and books, the possibility of fraud increases. According to ACFE, “Accounting department has the highest level of fraud at 14%.”

Pro Tip: Small business owners should introduce a process where all accounting documents like bank statements are sent to them first, before reaching the accounting department. This way, you can keep a record and prevent others from modifying bank statements.

3. INCREMENTAL INCREASE IN BUDGET

In small businesses, fraud typically starts out at small levels that business owners fail to recognize the fraudulent activity. Sometimes the employee starts by taking office supplies to home and other company property in small portions. Then there is an incremental increase in such activity for a long time, and the employee requests an increase in budget and other expenses to cover for his theft.

Pro Tip: To prevent this from happening, ensure proper inventory records, control, and enforce checkout procedures if office supplies are suddenly disappearing. You don’t have to micromanage things, but take small steps to protect your company from incremental theft. Also, communicate with your employees and inform them that you are looking into this issue.

4. AUTHORITY BIAS

According to Forbes, another red flag that small business owners need to look out for is the Authority Bias in their company. This is where someone important at the company, usually at a management position, portrays credibility that other people think that they don’t have to be as vigilant.

Pro Tip: Although it is not recommended that you violate workplace ethics and ask a lot of questions to your employees, you need to make sure everyone knows who has the authority. If you suspect fraudulent activity, then monitor your employee’s behavior to see if anyone is using their authority for fraudulent activities.

5. TOO GOOD TO BE TRUE!

As mentioned above, one of the biggest red flags is “the perfect employee” front. Business owners who discover later that there trusted employee embezzled resources typically say that “he was the most hard-working person or most rusted person in the company.” These people also take additional responsibilities and never take vacations.

Pro Tip: Beware of these type of employees, put them under scrutiny because they might have more access to all areas of your company, and no vacations mean that they don’t want to hand over their tasks to other people who might detect fraud. Talk to business attorneys or audit firms to look for ways to keep an eye on your employee’s documents and files without violating their privacy.

HOW TO PREVENT FRAUD – CONSULT AUDIT FIRM TODAY!

The most challenging thing for small business owners is detecting fraud in their company in the first place. The most shocking thing for them after the fraud is identified is seeing so many warning signs that had been there all along. Don’t let your friendship or “trust” destroy your business, consult top audit firms in Dubai today to save your business from fraud.

Most business owners fail to detect these signs because they lack resources to implement efficient internal controls. This is where a professional CPA audit firm can help you. With their support, you can implement better internal controls and review your employee’s duties and identify any red flag.

More Recommended:

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Top Reasons External Audit Services Good for Your Business

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