Many small organizations typically have limited resources to both prevent and recover from fraud. There is also often a high level of trust put upon employees due to the lack of internal controls.
According to the Report to the Nations: 2018 Global Study of Occupational Fraud and Abuse (the Global Study) published by the Association of Certified Fraud Examiners, 89% of occupational fraud committed was asset misappropriation and the median duration of a fraud scheme is 16 months. The following were additional key findings related to small business of less than 100 employees:
- Lost almost twice as much per scheme due to occupational fraud
- The median loss is $200,000 by employees with more than 5 years’ tenure
- 42% of the frauds are caused by lack of internal controls
In the world of online purchases and electronic payments, the trail of information is digital. The digital information, may then be destroyed, altered, or the description of the purchases or expenses may be unclear. Only 15% of the business in the study were able to recover the losses and the greater the loss, the less likely a full recovery of the losses are made.
Here are 15 low-cost fraud prevention options in the area of online purchases or electronic payments:
- Before these purchases are made, it would be a best practice for management to establish guidelines or policies in place to determine what type of expense to be incurred are appropriate. If you have a pet supply store, the purchase of a surf board may not be an acceptable business expense.
- Prepare a monthly budget and generate budget to actual reports on a monthly basis to monitor overall spending.
- Require a documented bidding process for larger purchases and purchaser be a different person from accounting.
- Limit the number credit cards, access to credit card information, and credit limits.
- Have a separate credit card or accounts for reoccurring expenses, such as payroll or subscriptions.
- An email address is established for online purchases. Confirmations for online purchases should go directly to this email address and a copy can be forwarded to purchasing and receiving. If someone makes online purchases through their personal shopping account, it could prevent the organization from obtaining details to items purchased. The amount paid and the vendor can be seen on a credit card statement or bank statement, but what was actually purchased might not be known.
- Require all business packages be delivered to the place of business. Packages received are opened and inventoried by someone other than the person who ordered the items. Items in the package, should be compared to the packing list and the original packing list should go to accounting. Accounting compares the packing lists to the confirmation email.
- Require a street address and social security or tax I.D. numbers for each vendor added to accounts payable vendor list (P.O. box numbers without a street address should not be accepted). Having this information would vendor address to be compared to payroll address to identify potential fictions vendors. Vendors used for certain goods or services should also be included in the vendor listing.
- Payments made through PayPal, Venmo, Apple Pay or another third-party payment processor be approved prior to them being made by the person processing the payment.
- Provide a budget for expenses to be reimbursed by employees prior to the employee incurring business expenses. This will prevent any misunderstandings of expenses that may be reimbursed or reimbursing expenses that may have already been paid by the organization.