The Importance of Internal Controls for Business Fraud Protection

It is often during difficult times that business owners will encounter fraud in their business. While it’s hard to overstate the impact that fraud can have on a business, it’s also something business owners have the power to control to some degree. The following is a list of critical internal controls that every business owner should put in place to offer business-protection dividends over the long term.

Set a Strong Tone at the Top

Leaders of the business should be communicating the importance of doing what is right. It is important that not only their words say this but also their actions.

Create Monthly Cash Flow Projections

If your actual cash flow falls short of projections, investigate to find out why.

Review Your Business’s Monthly Bank Statements in Detail

Have bank statements sent to a business leader that does not have access to make adjustments to the general ledger.

Review all Credit and Debit Card Statements for Accuracy

Using payment cards for business expenses can simplify accounting and tax preparation. However, the more employees that have company credit cards, the greater the chance of fraud. Require employees to document all business expenses with detailed receipts.

Set Up Inventory Control Systems

Inventory is often damaged, stolen or lost. Inspect and count incoming inventory to make sure orders were filled accurately. Designate who can sign for incoming inventory or release outgoing inventory. Conduct regular inventory of products or materials.

Monitor Point-of-Sale Transactions

Count cash in the cash drawer at the beginning and end of each business day. Use point-of-sale software that requires employees to log in; tracking who is on the register at any given time reduces the risk of theft.

Review all Outgoing Payments

Compare payments to invoices. Watch for duplicate invoices, new vendors, or multiple invoices from the same vendor in a short time. Embezzling employees often use these tactics to pay themselves.

Require Vendors to Submit Detailed Invoices

Avoid vague language on invoices.

Limit Check Signers

Require all outgoing checks and payments to be signed by someone that does not have access to make adjustments to the general ledger.

Review Payroll Before it Goes Out

Watch for any variations in the amount. Use direct deposit to reduce your risk of payroll fraud.

Delegate Financial Duties to Multiple Employees

If one person is responsible for all your business financials, such as bookkeeping, payments and payroll, it’s easy for them to steal from your business. Transactions that require authorizing, processing, recording, and reviewing a transaction should be performed by separate employees. No matter the size of your business or number of employees, a well thought out separation of duties internal control can reduce mistakes and opportunities for fraud to occur.

Check on Employees Involved with Your Business Finances

Require these employees to take annual vacations and have someone else handle their duties. Embezzlement is often discovered this way.

During a tough economy, having the appropriate internal control procedures can help mitigate potential fraud and help your business run as efficiently as possible. Many businesses don’t realize their weak systems until the fraud has already taken place. Making sure that you have appropriate controls and procedures in place can help to provide the peace of mind that is necessary for your business to continue to do what it does best for years to come.

If you have questions or would like to learn more, contact Dane Boeckermann at

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