If you hire employees in your business, this is one article you can not afford to miss. You work very hard for your business and it is natural that you want to reap the fruit of your workforce. However, do you know that your profits could be literally getting out of doors because of lack of good internal control and procedures every day?
When an employee has stolen $ 100 from you, have you ever wondered how much additional sales you would have to create to compensate for the loss?
If you work with 10% profit, it will take $ 1,000 in extra sales to compensate for the $ 100 earnings that your employee will leave. As your ratio of profits decreases, the amount of sales needed to compensate for a lost profit rate is required.
Business owners will largely agree that when most employees join the company first, they are basically honest. Most employees really wish that the companies they have joined will perform well so that they will also be useful in order to get better wages, bonuses and advances.
However, honestly honest men can rely on fraud in the company when three factors for fraud occur, namely:
• Pressure – the cause of fraud, for example a significant need for money, recognition etc.
• Opportunities – Ability to commit fraud, such as weak internal control, control of management, etc.
• Rationalization – Ability to Justify a Fraudful Act
As a business owner, you can not do much about two things "pressure" and "optimization"; You must manage other aspects of "opportunity". The ability to manage "opportunities" effectively will help you significantly reduce the risk of employee fraud in your business.
Small businesses are particularly vulnerable to fraud. In general, these agencies have far less control over protecting their resources from fraud and abuse. Managers and owners of small businesses should look forward to focusing their investments on the most efficient ways to prevent and analyze certain fraud systems that pose the greatest risk to their businesses.
There are many internal controls that you can set up in your various business devices, such as purchases, income, fixed assets, human resources and accounting processes to manage fraud. Below are 5 important internal control mistakes to avoid trading:
1. Inadequate separation of duties
Accidents such as surveillance systems, skimming and wage insurance are much more common in small institutions than in all other parties. This is due to the fact that these actions that conflict with the transaction – checking fee, cash collection and payroll respect – are more likely to be carried out by one person, such as a bookkeeper, and are often subject to less control within a small organization than in a large company where duties are more distinctive and authorization to trade is more formal.
The division of obligations is one key element of internal control. It is also one of the most effective internal controls in the fight against employee fraud. Definition of duties that contribute to the organization's system management system. The definition of duties is to separate the following liability in each trading system:
• Custody assets
Ideally, no person should handle more than one of the above operations in a process . When duties can not be fulfilled, the operator or managing director shall take account of the proposed payment management. Compensation checks are controls carried out by an independent employee who does not have custody, registration, authorization or compensation for a particular process.
2. Lack of Control of Employee Access Systems
Most companies now trust at least some kind of information system to assist in their operation and processing of their data. Because of the lack of proper control of employee rights granted to employees, employees may tend to engage in fraudulent activity, especially when granted with excess access rights in the system. It is therefore very important to ensure that access rights granted to all employees are in line with their role and responsibility in the company.
Formal documented security management should be available to ensure that all applications for new access rights to system applications and data are properly approved by the relevant business units. Revision of access rights granted to employees shall also be connected to the Management Board on a regular basis to ensure that granted access rights are commensurate with occupational duties over time
3. Insufficient supervision
A lot of companies lose money due to lack of control over the operation and financial operations of the company. While most large companies have some sort of management audit on controls, processes, accounts or transactions in place, most small businesses may not have the resources to perform a similar type of control.
Monitoring is especially important when employees & # 39; It is not possible to understand duties in practice. It is very important for business owners and managers to understand that "Profit is an opinion, cash is a fact". The amount of profit is easy to handle with different accounting methods; although the amount of cash on bank account according to the statement of the bank is a fact at any time. In addition to monitoring revenue and profit figures, owners and managers of the company must also monitor the money available to the bank.
Business owners and managers should ensure that regular financial information is available, such as money and income received. Settlement is the method of comparing transactions and activities with supporting documents to ensure the accuracy and value of financial information. It can be easily done by comparing relevant financial information to support information documents or independent external documents. For example, a successful bank session consists of amounts of money shown in the bank's monthly account (the document received from a bank that compiles deposits, check payments and other debts and credits) by the amount of money registered in the company and # 39; s main book, where all the difference between the two documents is well-known.
4. Inappropriate tone at the top
The tone at the top reflects the ethical atmosphere created in the workplace by the organization's leadership. Which tone management capabilities will have a negative impact on employees of the company. For example, if senior executives do not look at ethics and focus precisely on the bottom line, employees will cease to commit fraud because they believe that ethical conduct is not an emphasis or priority within the organization.
It's fierce for companies to succeed for executives and executives to put a moral tone on how employees should have at the workplace and communicate these expectations to all employees. Companies should establish a code of ethics that implies detailed compliance requirements, which are in accordance with the Business Management Code of Conduct. The Code of Ethics of these Code of Ethics should be sent correctly to all employees who need to read and acknowledge it.
Companies should also implement a whistleblower program, such as confidentiality. Only mention of fraud against confidentiality, confidentiality can prevent fraud. Serious introduction of a smartphone against fraud to employees sends the message that the company encourages a moral environment by allowing employees to report unfairly to misconduct.
5. Lack of Knowledge of Fraud and Importance of Internal Control
Evaders usually show behavioral signs of their misdeeds. These red flags – like living outside of one, mean or show control problems – will not be identified by traditional controls. Unfortunately, ignorance with red flag fraud has always been one of the main challenges to protect companies from fraud.
Business owners and managers will easily accept that employees are eyes and ears of an enterprise; If something is clear, they will probably know about it for managers or auditors. Employees are one of the most effective fraud prevention efforts in the organization. The 2010 International Investigation Study, published by the ACFE, revealed fraud commonly identified by tips, as workers are the most common sources of tips.
Vocational education is therefore the basis for preventing and diagnosing job vacancies. All employees (including upper secondary workers) should receive fraud and intelligence training. This training may take the form of classroom training or individual training and should cover the company's position on corporate and employee compliance and # 39; roles and duties to report misconduct in the company. Employees should also be trained to recognize common behavioral signs that fraud is taking place and encouraged not to ignore such red flags as they may be the key to detecting or preventing fraud.
In addition to the above five important internal control failures to avoid, there are much more internal controls that owners and business managers need to take into account. While preventive measures for internal controls are far to reduce fraud risk for businesses; it is impossible to eliminate fraud completely. It is important for organizations to establish a system for detecting violations and monitoring additional events to minimize unnecessary loss of business.
Source by Sylvia Lim