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This is not advice. Items herein are general comments only and do not constitute or convey advice per se. The information contained in these articles is for guidance only and should not be relied upon without obtaining professional advice having regard to your direct circumstances.


Avoiding theft and fraud

Failure to put any protective systems in place can leave small businesses wide open to being defrauded. Though there are many strategies in order to minimise these risks.

Every business can suffer from theft and fraud. It can be in the form of tools, equipment, stock, stationary, cash or even time and fraud can be in the form of kickbacks, bogus vendors or personal purchases via the company – we’re all susceptible.

In fact, small business is more vulnerable because there are usually no checks and protective systems in place and one person is often doing many of the duties. Prevention doesn’t have to be complicated, expensive or time consuming – it just requires some thought and pro-active attention to your business. Here are some ideas to help you deter theft and fraud:

1. Have a clear culture, so that all staff know there is zero tolerance:  Be transparent that you have checks in place – your staff will know things are being closely monitored and it’s likely if they did the wrong thing, they’ll be caught. Lead by example and be honest in your dealings. If you steal then how can you expect your staff to follow your lead?

2. Rotate staff and their duties:  Ensure staff have regular annual leave. One client of mine, a camera retailer, discovered a dramatic improvement in their profit during the month that an employee was on annual leave.

3. Have appropriate segregation of duties: For example, the person in charge of purchasing should not be responsible for creditor payments. When one person does it all, opportunities arise for dishonest staff to act. This can be difficult for small businesses where there is only one staff member so you need to be careful in other ways if this is not an option for you.

4. Have a reconciliation process, cash register dockets etc: Ensure when you deal in cash that the banking reconciles to the till dockets or taking sheets. Not only is this responsible from the fraud perspective, but the ATO also has an expectation that you have some reconciliation processes in place.

5. Have suitable authorisation procedures in place: In respect of raising and signing cheques, purchases etc. In a small business, as there may not be a lot of staff, perhaps the business owner should be the authoriser.

6. Computer systems: Should be used by authorised personnel only with access control, through methods such as pass-wording access. Does your system have “warning bells” such as credit limits being reached?

7. Assets, inventory and stock are tracked and regular stock-takes occur: Even if you don’t have to stocktake for tax purposes, you should do so regularly, otherwise how will you know if stock is “walking” out the door?

8. Conduct a random audit: Even if informal. Watch movements in your bank accounts and trust your instincts – most business owners do have good “gut” feelings about their business. Consider having an independent review by someone external and experienced, such as your accountant.

9. Have suitable reporting: Watch debtor and credit listings and other reports, such as Profit & Loss, Balance sheet etc. Review regularly and frequently.

10. Ensure your books are up to date: If they aren’t current, how can you possibly find anomalies?

11. Be proactive: Personally look at your books and bank statements. Trust your instincts (they are probably right) and ask questions. Don’t allow your bookkeeper or staff member to make you feel guilty for asking questions. Any qualified, professional and honest bookkeeper or employee will encourage and support owner review.

12. If you seem to never have any cash, but the business appears to be doing well, then investigate: It may be an error in the record keeping or an indicator that all is not well. Some ideas are:

• Liaise with your suppliers personally to check all is OK and the account is up to date

• Look for large, or numerous sale credits in your books

• Look for large, or numerous purchase credits in your books; and

• Look for supplier names or employees you don’t recognise.

Some examples of fraud I have personally uncovered include:

Bookkeeper sent letter to suppliers providing new bank details – her’s! She raised lots of large sales credits so when payments went to her bank account – the company debtors listing wasn’t large. Amount stolen –unknown

Bookkeeper paid fake invoices to fake suppliers - except bank details were her own and that of her husband. Amount stolen - $400,000 plus.

Bookkeeper made payments for real suppliers but instead of paying them, the funds went back into her bank account and she kept the statements and letters of demand and late notices hidden. Amount stolen - $100,000

These are extreme examples that diligent business owners will avoid with a little common sense and keeping in the know. Remember that the majority of bookkeepers and staff are basically very honest, However, we should be prepared and forearmed for the occasional “bad apple”.

Donna Strone
My business, February 2009


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