24 Aug FRAUD PREVENTION: HOW BUSINESSES CAN PROTECT THEMSELVES AGAINST FINANCIAL FRAUD
Financial fraud isn’t just a large-corporation problem — small and mid-sized businesses are frequently targeted, and often hit harder, because they typically have fewer internal controls. A handful of practical controls can dramatically reduce your risk.
- Separate Financial Duties
No single person should control an entire financial process — creating a vendor, approving an invoice, and cutting the check. If staff is too limited to fully separate roles, add an owner or manager review step as a backup.
- Require Dual Authorization for Payments
Set thresholds above which checks, wire transfers, or ACH payments require a second signature or approval. This single control stops many fraud attempts, including business email compromise scams where a fraudster impersonates a vendor or executive to request an urgent transfer.
- Reconcile Bank Accounts Regularly — Independently
Monthly reconciliation is a fraud detection tool, not just a bookkeeping task. Ideally, the person reconciling shouldn’t be the same person processing payments. As the owner, review statements yourself periodically too.
- Watch for Red Flags in Vendors and Payroll
Be alert to vendors with PO boxes or no physical presence, duplicate invoices or amounts just under approval thresholds, employees who never take vacation, and unexplained changes to direct deposit information. Periodically audit your vendor file and payroll records.
- Protect Against Cyber-Enabled Fraud
Require verbal confirmation (using a known phone number, not one in the request) before changing vendor payment details or executing large transfers. Train staff to spot phishing and urgent, pressure-based requests, use multi-factor authentication, and keep systems updated.
- Conduct Background Checks
Before granting financial access, verify employment history and run background checks where appropriate — a reasonable first line of defense for roles handling cash, payroll, or vendor payments.
- Establish an Anonymous Reporting Channel
Tips are the most common way fraud is detected — more than audits or controls alone. A dedicated email or low-cost hotline service gives employees a safe way to flag concerns.
- Schedule Periodic Independent Reviews
An annual review or agreed-upon procedures engagement from an outside CPA firm adds scrutiny internal staff can’t replicate and serves as a deterrent since employees know outside eyes will review the records.
- Set the Tone from the Top
When leadership follows the same approval processes as everyone else and takes fraud seriously, it reinforces expectations across the organization.
The Bottom Line
No business is too small to be a target, and no controls are completely foolproof. But layering these practices makes your business a much harder target and increases the odds that fraud is caught early.
If you’d like an assessment of your internal controls or want to discuss an independent review, contact our office to schedule a consultation.
If any topics covered in this newsletter raise questions or if there are other accounting or tax matters on your mind, Gates Kirby & Company is always happy to provide guidance tailored to your unique situation. Our team genuinely enjoys helping clients navigate these topics with confidence. We look forward to connecting with you soon.
- Gates, Kirby & Company.
Tax laws, regulations, and interpretations change frequently. Due to nature and complexity of changing tax laws, the content may become outdated and therefore be historical. The newsletters provide no guarantee the information is complete, accurate, or current. Readers should review applicable rules and laws by consulting official sources (e.g., IRS, Colorado Department of Revenue) and/or consult with Gates, Kirby & Company to review how the newsletter content may be applicable to your tax situation.