When you’re running a business, there’s plenty to take care of and handle. For many small business owners, this means taking up the responsibility of all aspects of the business. One such area of the business that many small business owners look to outsource is managing the finances with a bookkeeper or accountant.
But, one thing that many business owners forget to realise is that they can be opening themselves up to the possibility of fraud. Whether you’re growing your business or you’re looking to hire staff and contractors like a bookkeeper, it’s important to understand a few things to ensure you’re protecting your business from fraud.
According to the Association of Certified Fraud Examiners, internal control weaknesses were responsible for nearly half of all fraudulent activities in small to medium businesses. With the estimated median loss from fraud being approximately $150,000, it’s more important than ever to ensure that your business is safeguarded as much as possible. Even if you have various insurances in place, it can still take a lot of effort and time to recover any money that is stolen. Unfortunately, many businesses are never able to fully recover all of their losses.
What is “fraud”?
According to a survey completed by the Australian Institute of Criminology, fraud is generally defined as “any dishonest activity causing actual or potential financial loss to any person or entity including theft of monies or other property by employees or persons external to the entity and where deception is used at any time immediately before or immediately following the activity”.
Fraud cases can happen in the most unlikely of places and more often than not, by people who you wouldn’t expect. Fraud cases can be small, thousand dollar amounts right through to extensive fraudulent activity in the millions. In 2018 a woman was charged with stealing just over $3.5 million from her employer over several years when she worked as a bookkeeper for a business.
What is the impact of fraud on a business?
If we’re cutting straight to the chase, a person who has access to your bank account can take everything in that account from you. Of course, this is a scenario that everyone would want to avoid but it’s not the only potential impact of fraud on you and your business. There are other various scenarios that can occur from fraudulent activities such as:
Invoicing – if someone is in charge of all of the invoices for your business, they could change the invoice bank account details to their own and then credit the invoice to themselves.
Payroll – it is relatively simple for someone on the payroll team to create a fake employee and pay themselves as an additional employee (if the right safeguarding measures aren’t put in place).
Purchasing – A person with the responsibility of purchasing may be able to pay themselves an additional wage by creating duplicated or fraudulent invoices for commonly purchased items within the business.
As little as it may seem to have an extra invoice paid here or an extra salary paid once off there, if these types of problems arise within your business, it is easy for your cash flow to be affected. This can, in fact, force you out of business completely.
Simple signs to look out for that may mean you’re at risk of fraud
As a business owner, it’s always important to keep an eye out for any strange or unusual occurrences within your business. Of course, if you are already handling a lot of aspects of your business, it makes it even harder to keep an eye on every single aspect at any given moment of your day. But, there are a couple of things that could be signalled as red flags within your business that could put you at risk of fraud. This includes:
- A manager or yourself not being involved in approving any invoices before payments are made
- There is only one bookkeeper (whether that’s internal or external) who is completing the accounting functions for your whole business
- Your bookkeeper has requested full access to your bank accounts and is able to make payments without a second signatory
- There are unexpected increases in asset purchases and/or expenses
How to protect yourself from fraud using Xero
Luckily, you are able to prevent the occurrence of fraud at some level with the use of popular accounting software, Xero. Xero allows you to have an extra level of control within your business finances and you can implement a number of different safeguards to ensure that Xero has your back when you are running your business.
- Restricting access – while it may seem like a hassle to continuously approve transactions and accounts throughout your daily business life, you will be saving yourself a lot of time, effort and potentially money if you restrict access to authorising payments from within your bank accounts to only a couple of people within your business. Even then, ensure that you require dual signatories to authorise any payments.
- Purchaser invoice approvals – make sure that all of your invoices are approved by the purchasers before they are paid within your organisation.
- Segregate duties – having one person in charge of a number of duties can easily mean that they can approve themselves to steal funds from your business. By segregating duties throughout your organisation and having different people for different roles (such as raising invoices and paying bills), you’ll be able to ensure there are more than just one set of eyes looking at the business finances at all times.
- Restrict access – In Xero, you’ll be able to restrict access to various settings such as changing bank account details. This will ensure that anyone trying to commit fraudulent activity will be restricted from changing bank account details to their own.
- Review – it’s important as a business owner that you should be regularly reviewing your business and your financial details. Start by regularly reviewing your Profit and Loss and Balance Sheets and make sure that all of the figures are in line with what you are expecting.
- Assurance dashboard – In Xero, there is a very handy feature known as Assurance Dashboard. This helps your accounting team to ensure that your business is being operated properly and can assist with identifying any anomalies within your business. It makes all of these controls highly visible and you can also receive an alert to any transactions or occurrences that may need your specific attention. Ask your accountant or bookkeeper to review the Assurance Dashboard in Xero to look over any odd user activity or bank account activity. They’ll also be able to address any contacts that may have the same bank account as other contacts recorded in Xero. Assurance Dashboard can help identify and rectify errors in Xero but can also help potentially uncover any fraudulent activity that may be of interest to you as a business owner.
If you’re concerned about any activities within your business that you may think are fraudulent, it’s always best to address the issues as soon as possible. If you’re in need of a bookkeeper within the Brisbane area who can help ensure that Xero is set up properly and effectively to protect you and your business from fraud, get in touch with the friendly team at Diverse Business Consultants today.