Juan Monteverde Discusses 5 Ways to Prevent Fraud When Building a Business

Attorneys like Juan Monteverde are accustomed to fighting against big corporations that feel like they are above the law. While corporate fraud is exceedingly damaging to the business, employees, and consumers, lower levels of fraud at a small business are still an extreme hardship. 

Many small businesses do not have the excess cash flow necessary for absorbing a large loss due to fraud, and it can be harder to regain public trust if the theft impacts consumers. Implementing strong bill and cash management procedures from the start is the best way to avoid a major incident. 

Tips for Avoiding Fraud

Avoid Petty Cash as Much as Possible

Many small businesses maintain a petty cash fund for incidental, unexpected expenses at the office. From things like birthday cakes for office parties to little purchases for charitable endeavors, it can seem like a good idea to have cash on-hand for ease. However, petty cash is always a risk. Instead, consider implementing a rapid reimbursement policy for small purchases or have an easily accessed business payment card on hand for an employee, such as a secretary or office manager, to use for random items. With an increasing number of businesses switching to portable card readers versus cash use, it’s easier to remove the petty cash fund now than ever before, Juan Monteverde advises.  

Set Up a Direct Draft for Major Billings

Many major expenditures, such as utility bills, payroll, and supply purchases, can be placed on an automatic debit plan from the provider. This helps limit the amount of funds directly controlled by employees. Managers and owners still need to review automatic debits for any errors and to ensure timely payments, but the opportunity for human mistakes and personal cash management are greatly reduced, Juan Monteverde clarifies. Even when automated direct payment cannot be used, the small business can still set up debit payments directly from a bank account to avoid unnecessary check writing and cash payments.

Require Two Signatures for All Expenses

When covering certain expenses via check or when direct payment is necessary, it’s best to implement a two-signature policy. With this system, checks are signed by two employees in order to be paid, and other expense types may also undergo a two-person or committee review process. This technique can also be limited to purchases at a certain level and above, such as expenses at or above $100 or $500. 

Review All Credit Card Transactions Monthly

When petty cash funds aren’t used, businesses often rely on a business credit account to cover incidental expenses. While this helps avoid the problems commonly associated with cash, credit card transactions still need to be monitored regularly.  Employees using cards should turn in receipts within a prescribed period that allows cross-referencing each purchase with the monthly credit card statement. For the best financial management, employees should avoid mixing professional and personal expenses, even if there is the intent to reimburse the company.

Monitor Hours and Overtime

One of the easiest ways for a small business to suffer fraud is with the manipulation of hourly wages. Many workplaces have policies in place to eliminate or limit overtime, but this is impossible in some businesses. When overtime is allowed, there need to be policies to document work efforts leading up to the first 40 hours of a week and to establish why overtime is necessary. For example, in a project-based business, if insufficient progress is accomplished in the first 40 hours of the week, an individual worker may need to have overtime limited in the future.