Preventing and detecting small business fraud

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Guest editorial by Garland Granger, CPA, CIA, CFE. Garland Granger is president of Professional Accounting Seminars, Inc., Greensboro. He recently conducted an accounting seminar at the 10th Annual Carolinas Chapter of the CFMA Carolinas Construction Conference. Granger can be reached at 336-545-9769 or by email at ggranger2@triad.rr.com.

Almost all fraud surveys and reports have found that the  reasons why employees commit fraud in the workplace are: personal  financial pressures, vices (drugs, alcohol, gambling), extravagant lifestyles or grievances against the employer. Management  can prevent and detect fraud by taking the following actions.

Outsource to qualified professionals all functions beyond  the abilities of company personnel.

Perform periodic internal control evaluation and fraud/theft  risk assessment.

Perform timely financial trend analysis to identify potential red flags.

Segregate incompatible functions.

Perform periodic spot checks of the high risk ares for your company.

Establish a code of conduct which is well communicated,  understood, monitored and enforced.

Hae a control environment that emphasizes integrity and  proper internal controls.

Have proper security for assets, computers and technology.

Have adequate and appropriate bonding and insurance.

Properly use an accountability program.

The “number one”  tool for detecting internal fraud is whistle-blowing by co-workers. The  “number one” deterrent to internal and external misappropriation is the fear of getting caught.

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