This morning I listened to one of the local podcasts I’ve been experimenting with, published by a Maryland newspaper called The Business Monthly. In the most recent show they interviewed Edward McMillan, the author of a new book titled Policies & Procedures to Prevent Fraud and Embezzlement. McMillan brought up some strikingly easy ways to prevent accounting fraud that every business should consider. I can only imagine that most people are like myself and have given little consideration to fraud taking places under their noses. The truth of the matter is that, regardless of the likeliness of it happening, there are a few basic steps that can be taken to prevent it. I highly recommend listening to the interview (starts at 11:15 on the podcast), but here’s a summary of McMillan’s over-the-air recommendations for fraud-preventive practices:

1. Have your business’s bank statements mailed directly to you (the owner / principal) rather than directly to the company or the accountant/bookkeeper. Take a couple minutes each month to quickly look through the deposited checks to make sure that everything seems legit. Then, pass them along to your accountant or bookkeeper.
2. Consider “bank lockbox” for mailed invoice remittances. In other words, for a small fee, you can send a return envelope with your invoices that will allow your customer to send their payment directly to your bank (though this remains transparent to your customer). This restricts the ability for someone to deposit company-directed funds into an account with a similar or identical name at another bank.
3. Consider a “Positive Pay” service for all checks/payroll. This fairly common bank service enables your check writing activities to synchronize with your financial institution’s record of your account. This prevents common fraud tactics like someone copying a check and attempting to deposit it twice, or someone depositing a vendor’s check into an account with a slightly different payee name. Everything about the outgoing check will be monitored to alert you when things don’t match up.
4. Consider having two-signers on all checks. A second pair of eyes makes it less likely for an altered check to get out, and makes forgery more difficult.
5. Use direct-deposit for payroll. Direct deposit makes it very difficult for someone to put a nonexistent person on the payroll. Most people who create fake people on a payroll will use a check cashing service because there’s no audit trail when they cash these checks. However, with direct deposit, any attempts to funnel money elsewhere will be tracked…thus it’s much less likely for someone to attempt.

McMillan went on with ideas for how to approach situations where fraud might be a question, and the role of a CPA/employee in the finances of one’s business. This is all important advice for me to consider, so I thought I ought to share it with some others who could equally benefit.

Filed under: Business

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