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7 Tips to Detect Fraud in Your Business

detect fraudCompletely preventing fraud may be the ultimate goal for small business owners, but what can you do to detect fraud that may already be occurring inside your company?

According to accounting expert Brian Kelly of Brian T. Kelly, CPA & Associates, LLC, in Carbondale and Honesdale, PA:

“In order to detect fraud in your business, (which can be very difficult due to collusion of employees, or trusting someone that has been your employee for numerous years), you must review “financial and non-financial information. As a business owner, you must meet with your senior level and lower level employees to discuss business operations, employee attitudes, comparative financial results and most importantly non-financial results to investigate any unusual or ‘head scratching’ observations.”

If you have suspicions of fraud in your small business, here are 10 things to look for that could lead you to discover fraudulent activity.

Tip 1 – Missing Documents

Missing documents are usually a major indicator of fraudulent activity. Naturally, accidents do happen, but you should always have clear explanations for missing documents are ensure that proper procedures are in place should documents go missing in the future.

Tip 2 – Complaints from Clients or Employees

It’s true that not all complaints may be warranted, however, it’s important that you pay attention to the complaints you receive surrounding a particular activity (or employee) in your organization, and they be a red flag for suspect activity.

Tip 3 – Suspicious Behavior

Be aware if any employee suddenly displays a suspicious change in behavior, such as excessive smoking, drinking, or increased irritability and defensiveness.

Tip 4 – Excessive Voids

Excessive voids are often a big indicator of theft. Be sure to watch for voided sales, duplicate payments or bogus refunds that lead to stolen money by an employee.

Tip 5 – General Ledger Out-of Balance

When your general ledger is out of balance, it is a sign that money or merchandise may have been stolen but the perpetrator was unable to make a false entry in order to force balance the records.

Tip 6 – Inventory Shortages

If you notice a sudden and drastic inventory shortage, it could possibly be caused by embezzlement or theft.

Tip 7 – Expense Accounts

Fraud is often concealed in individual employee expense accounts so it is extremely important to monitor usage and require reasonable explanations for discrepancies found.

Use this list to help detect fraud in your company and avoid many of the common pitfalls experienced by other small business owners.

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