Small businesses often lack the resources to implement an internal control system that relies on segregation of duties and internal audits. There simply is not enough manpower! Statistics show that billing schemes account for 23.9% of all payment process fraud, and check tampering accounts for 14.7% of fraud cases. Because most business fraud situations last for about two years before they are discovered, the dollar losses related to these two schemes can exceed six figures.

One suggestion to break this cycle is to have the bank statements of the business sent to the home of the owner, or forego paper statements and have the owner inspect and download online statements. By doing this, the owner can review the payments made, along with the cancelled checks. The most important aspect of the control is that the employees understand that the bank statements are being reviewed by the owner. The owner might even follow up on a few randomly selected payments each month, even if there is no suspicion of foul play. This control will reduce the perception that the opportunity exists for an individual to write a check to himself, to a false vendor, or to purchase a product or service with no business purpose.

Another suggestion for the small business owner is to touch base with vendors periodically. This gives the vendors an opportunity to let the owner know about any unpaid invoices or late payments. Again, it is important that the employees know that the owner is communicating with vendors.

Utilizing these two suggestions should help the small business owner prevent fraudulent schemes before they are started, and maximize the potential for early discovery if such schemes are instituted by company employees.