An entrepreneur that handles a very small business usually handles all the task by himself. This is true when an entrepreneur is just on his initial stage of his venture. Sometimes family members helps in running a business and also the relatives voluntarily have a share of responsibilities. But as the business grows he needs an outsider to help run the business which makes things more complicated. At this point he have to delegate responsibilities to his employees so he needs to establish an internal control systems to avoid errors,fraud or theft on his business
To be effective two actions are needed for the internal control systems. One is the safeguarding the records to avoid access either physical or electronic data. The other one is to segregate duties to avoid conflicts among the workers and also to limit the access to the most important area of the business which is cash transactions. Cash flow should have a system of check and balance to avoid loss.
Internal fraud in a business can be committed by the following conditions: The most common is the need for money which corrupts even the most honest and loyal employees. Which aggravates the situation if the owner or management is callous or have no concern among his employees. Employees are tempted to do such an act if there are problems that arise like for example the usurer or the credit collector knocks on the door or make a threatening call to them, bloating hospital bills of his immediate family, drug addiction or extravagant lifestyle.
The other cause is the company’s environment that makes fraud possible like loop holes in the systems or procedures. A very loose petty cash or leaving the petty cash box unattended make someone tempted to abuse it. Anybody in a company can commit fraud from the management to the rank-and-file. To the latter, it is more easier to detect than those in the management. Since they have authority they can easily abuse it. This is true because I have worked with a bully manager that can easily commit fraud in the company when I was still employed. He can easily demand petty cash on any items he wants to purchase even he is not sure if the parts he wants to replace in a machine is defective. Imagine even the employer is disgusted by this idiot when he was asked about an item that cost US$1,000, and this manager can’t answer where will he use the item for? If I were the employer, I’ll use the 1,000 dollars to fix this manager’s brain. ( just kidding).
The maintenance cost of facilities like the air conditioning, he can also manipulate by frequent repairs but who knows if they really need repairs? it is obvious that there seems to be an under the table transactions going on. Crooks like these lacks integrity and justifies their fraud by blaming other people or very defensive and argumentative. So employers should be observant for any suspicious activities. Employers which are abroad for example my previous employer who is living in Switzerland don’t have an idea what is really going on in his company. He just comes yearly to visit his plant then go home. But who knows, maybe he has some spy or overseer to look over his company’s affair?
All in all, beside the internal controls or whatever advance technology to handle employee fraud, the best prevention against fraud it to care for your people. And this is what we call leadership. You don’t manage people, you lead them. Cultivate loyalty and genuine concern among your employees by providing regular counseling on family problems, financial planning and health education.
Posted by Manuel
Manuel Montala was an online entrepreneur who enjoys blogging about entrepreneurship and gathering information for his blog to help budding entrepreneurs. You can also reach him on twitter: http://twitter.com/mmontala
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