Minimizing payment fraud–Eight Proactive Steps for Your Business

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Workplace fraud can be anywhere. Employees may pilfer small items from the
office or embezzle hundreds of thousands of dollars. All too often, business
owners are oblivious to wrongdoings, or they simply refuse to acknowledge the
possibilities – until it’s too late.

You have worked hard to get your company to where it is. Don’t let fraud reduce
the profitability and ultimately the value of what you have built.

Recently I was interviewed for Bank of America’s Small Business Online Community
regarding “Payment Fraud: What to Watch Out for and How to Prevent in Your Small
Business.” I thought you may find it of interest to read the eight practical
points that I mentioned during the interview. These are summarized below.


Here are eight proactive suggestions for thwarting payment fraud:

1. Limit the number of people authorized to sign checks.

2. The business owner personally should open the check statements from the bank
to keep tabs on what has been paid.

3. Consider using an independent or outside CPA to reconcile bank statements.

4. Create a budget at the beginning of the year and track [transactions] by
month, if there are unauthorized transactions, they may stick out.

5. Have a clear process in place to review and approve new vendors into the
accounting system.

6. Use positive pay. With positive pay an electronic list of checks that were
drawn by the company is sent to the bank. The bank matches this list against
checks that are presented to the bank for payment. If a check is not on the
list, the bank will not pay it.

7. Signature plates and stamps—should be kept locked up with only a limited
number of people who can access them.

8. Perhaps one of the most important practices is separation of duties, where
the person who writes the checks shouldn’t be the person who reconciles the bank
account, or prepares the checks, or mailing out the checks. . It is a
fundamental control to have different people involved in the process.

IRS CIRCULAR 230 DISCLOSURE: To ensure compliance with Treasury Department
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correspondence (including any attachments) is not intended or written to be
used, and cannot be used for the purpose of (i) avoiding penalties that may be
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recommending to another party any transaction or matter addressed herein.