How to Prevent Fraud as A Small Business Owner

Most entrepreneurs do not envisage a fraud and thus are inexplicably shocked by the sudden invasion by a scammer in their territory. It does not come with a warning sign and can shake up the foundation of the organisation. Small business frauds can make the company nosedive into a financially troubling situation and make it difficult to reinstate the previous status. Embezzlement, misappropriation of funds and theft are becoming commonplace in commercial circles.

According to a PWC report, the rate of frauds involving senior management in the country has increased to 34% in 2020 from 15% in 2016. Thus if you are planning to purchase a business for sale in South Africa, then you must be cautious of deception and pilfering. Also, you must be aware of the ways of preventing such damaging actions. Here are some tips to avoid getting cheated by an employee, partner or a supplier.

Types of Fraud That Are Prevalent in The Industry

To understand business fraud better, you need to know about all the different types of swindling that can make a significant impact on the organisation.

• Accounting Scam

It involves embezzlement of funds by someone who has access to the financial information. Another type of accounting fraud occurs when an employee purchases something for personal use with business funds. Some more devious schemes involve creating fake bills or tampering with the recorded numbers.

• Data Theft

With South Africa having the third-highest victims of cyberattacks across the world, the incidents of business data theft are rising. The hackers break into the private network of a business to retrieve plans, product information, and trade secrets.

• Corruption

It occurs when an employee passes on classified business information to competitors in exchange for a bribe. Another example is when a supplier offers duplicate parts and goods to reduce expenses.

• Others

Some fraudulent employees may be stealing cash or forging cheques to take money out from the organisation.

How to Prevent Business Frauds

Equipped with information about frauds, a business owner can make the following attempts to keep the organisation protected from them.

1. Screen Your Employees During Recruitment

Small businesses usually do not follow standard recruitment procedures or protocols while hiring. However, to find honest and trustworthy candidates, you must run a background check on them after they get shortlisted. If you are recruiting an individual in the accounting team, then you must be extra cautious as they will be handling cash and financial information. Ask for references and speak to the previous employer to get a clear picture of the past behaviour and professional record of the candidate.

2. Putting Disciplinary Policies in Place

A significant way of keeping the behaviour of the employees under check is to create an employee policy. It must outline the anti-fraud policy adopted by the company, which must warn the employees about the complete non-tolerance against corruption and deception. It must be communicated during the recruitment process and reiterated during training to drive the point home. It must also provide details related to accessing and storing sensitive business information and who all are entitled to do so.

As a rule, the owner must keep an eye on the behaviour of the employees, and if someone sticks out because of suspicious activities, then he should be questioned about the same.

3. Organised Record Keeping and Accounting

Since accounting frauds are becoming common, it is highly crucial to keep all the transactions recorded systematically. As a business owner, you may not have the time to keep track of all the incomings and outgoings. However, you can get an accounting software which records all the financial information through professional accounting and record-keeping methods without making any errors or delays.

You can get real-time updates on your mobile phone, and the data stays safe with restricted access to authorised users. The bookkeeper or the accountant should use firewall protection and multi-level authentication to make sure that hackers cannot get into the system. Seek advice from the IT professionals to create a robust and protected private network with a strong password policy.

4. Regular Audits Should Be A Part of Internal Controls

A surprise audit is the best way to catch fraud without giving any warning signs to the culprit. Auditors know all the tactics to uncover every detail related to payments and can identify fraud quickly. The audits should assess every business function which involves funds, inventory, assets, product returns, payroll management and reimbursements, etc. The fear of an unplanned financial and business analysis can keep a check on deceitful activities. Also, audits are instrumental in finding out mistakes in the books and help the business owner to correct them in time.

5. Keep Your Business Credit Card Details Secure

It is common knowledge that entrepreneurs must keep their personal bank account separate from the business account. The business credit card should also be used only for businesses purposes and never utilised for personal expenses. It helps in tracking the business expenses at the time of filing tax returns. Also, credit card fraud is on the rise in the country and a trick could lead to heavy loss of funds. If you do not have a separate business credit card, then the loss can become doubled.

So, make sure that you keep the personal card separate and do not provide your business credit card information to anyone. Use the card details only on authentic websites and banking sites for making online payments.

6. Monitor Your Suppliers Closely

Suppliers are one of the most valuable members of an organisation as they provide the stock for running the business. However, they can commit several frauds including fake invoicing, providing counterfeit products, taking advanced fees, or executing software fraud. You must check the credit history of the supplier and speak to other customers to know about the service.

Also, make sure that the payments are made to the same person,and there are not many individuals involved in the transaction to reduce the risk of theft. You can simply do a Google search to read about the reviews and get an idea of the reputation of the company.

Conclusion

It is not easy to run a business. You must be vigilant of trickery and avoid getting ripped off by known and trusted people. Thus, if you are planning to purchase a business for sale in South Africa, then make sure that you follow the tips mentioned above to avert such incidents.