A new series by Contractor Mag highlights some accounting basics that all small contractors need to know. In the latest article, the author highlights some internal controls all businesses should implement in order to prevent fraud. Here are the some common problems and the internal controls you should put in place to handle them:
There are a couple ways to forge checks, but the first step against prevention should be to limit access to blank checks. You should have one person write checks, and another do the bank reconciliation, and also have bank statements sent to an address outside the office. Another option might be to establish secure online bill paying.
To prevent inflated payments to vendors, or double-payments, it's important for a business owner to occasionally double-check the approved vendor list. Check the system to make sure there aren't any suspicious cleared or voided checks. Cross-reference billing addresses with employee address. And as always, make sure a separation of duties is in place.
It is particularly easy for contractors or subcontractors to steal cash from the company. When they provide a service, they may ask to be paid in cash by the customer, destroy the service ticket, and say the job was cancelled. A technician could ask for a check to be made payable to him personally, and then alter the check. One way to prevent this might be to follow up with customers after service calls.
Sometimes employees take materials from the office for personal use. With contractors, they might even “borrow” materials for use on their own side-job. Keep your materials secure, and make sure your shop is monitored with a security camera. Doing a regular inventory helps a company stay abreast of any variances.
Establishing some simple internal controls to will go a long way to prevent your business from being a victim of fraud. Check out the full article from Contractor Mag here.