The Fraud Factor: How Outsourced Bookkeeping Can Safeguard Your Company

This Podcast Is Episode 595, And It's About The Fraud Factor: How Outsourced Bookkeeping Can Safeguard Your Company Fraud can be a significant threat to businesses of all sizes in any industry. Construction companies are not spared and are even more vulnerable to various fraudulent activities, from bid rigging and inflated costs to payroll fraud and misuse of funds. Many small business owners have become increasingly concerned about fraud after the pandemic. According to SAP Concur (An expense management solutions company), a staggering 85% of businesses surveyed expect the risk of fraud to continue. Making matters worse, many fraudulent acts originate from within businesses themselves. What can you do as a construction business owner with three or more employees? You can start with essential internal controls that you can implement to safeguard your business: 1. Segregation of duties

A critical first step in preventing fraud is ensuring that no one individual has control over all aspects of any significant transaction. For example, the person who approves expenses should not be the same one who processes payments. Distributing tasks among multiple employees significantly reduces the chances of fraudulent activity going unchecked. This internal control is important for small businesses, where roles may overlap, making it crucial to ensure that checks and balances are in place.

2. Regular financial reconciliation

Routine reconciliation of financial statements, such as bank statements, helps identify discrepancies or unusual transactions early. Create a monthly or quarterly schedule to compare transactions in your accounting software against bank records. If you have an accountant, engage them in this process to ensure the highest level of scrutiny. Keeping a close eye on these financial statements not only helps to identify potential fraud but also aids in maintaining accurate financial records.

3. Comprehensive access controls

Restricting employee access to financial systems and sensitive data is vital for reducing fraud risk. Employees should only have access to the information and functionalities necessary for their roles. For example, HR staff should not have access to accounts payable functions. Implement multi-factor authentication (MFA) and regular password updates to bolster security further. This internal control limits potential opportunistic fraud and shows employees that the organization takes security seriously.

4. Employee training and awareness

Educating employees about fraud risks and the importance of internal controls is essential. Regular training sessions should cover how to identify and report suspicious activities. Encourage a culture of transparency and communication so employees feel comfortable voicing concerns. Consider using real-world examples pertinent to your industry to make training more relatable. This approach empowers employees to act as your first line of defense and reinforces the importance of safeguarding the organization's assets.

5. Whistleblower policy

Establishing a robust whistleblower policy encourages employees to report unethical behavior or fraudulent activities without fear of retaliation. Ensure that this policy is well-publicized and accessible to all staff. Consider offering anonymous reporting channels, such as hotlines or secure email addresses. A firm whistleblower policy enables early detection of fraud and fosters a culture of accountability and ethical behavior within the organization.

6. Comprehensive internal audits

Regular internal audits by internal staff or external auditors serve as an additional layer of scrutiny. These audits can help identify weaknesses in your internal control systems and recommend improvements. Make sure to continuously act on the recommendations in audit reports to enhance your fraud prevention strategies. Regular audits help identify vulnerabilities and demonstr