Thread by @girdley

How do you avoid fraud?

If you own a business and someone hasn't stolen from you, either you haven't owned it for very long or you haven't found the fraud yet.

It's a constant battle.

There are ways to reduce fight it by being smart.

Here are some.

1) Reduce the number of people who can authorize payments and/or sign checks.

Keep cash payments as close to zero as you can.

Don't use a signature stamp or automated approval.

2) If you're the owner, you can and should look at bank statements yourself.

Don't let another employee get them for you.

3) New vendors should require an approval process from the CEO, owner, or a similar trusted person.

Reduce the number of people who can approve to a bare minimum.

4) Have vendors acknowledge in writing your policies around kickbacks and self-dealing by employees.

Make sure they know you can and will sue them when you catch them.

5) Have a two-step approval process (or three) for all expenses.

So, the sponsoring line manager, CFO, and CEO would have to all approve any and all payments.

6) Have a no-excuses nepotism policy.

Do not hire immediate family members.

Exclude them from being service providers.

No exceptions.

7) Meet with big subcontractors and contractors in person regularly.

Probe if anything unseemingly is going on.

In-person is best because it's easier to get nonverbal information here.

8) When you can, become fully audited by a reputable firm.

Change auditors every few years.

Have a trusted person or owner interview the auditor each year and identify any gaps where theft could occur.

9) Watch closely for weird behavior such as employees refusing promotions, regular gambling trips, fancy purchases, or insisting on owning a vendor relationship.

10) Every employee should have a criminal background check and credit report done prior to hiring.

11) Every single expense must have documentation.

No exceptions.

12) Insist on a 3-bid minimum policy.

Occasionally, get the 4th bid on your own.

Or run the 3 bids by an expert to "smell test" them in case they're inflated->kickbacks.

13) Have a trusted person examine every single transaction on a regular basis.

This means going to the bank statements and looking at them vis-a-vis your accounts payable system(s).

14) Bank accounts should be under centralized control.

Local managers should not have access to bank accounts or have the ability to write checks without oversight.

15) Cash balances should be swept daily into central control accounts.

The fewer the number of accounts with the fewest number of signers possible.

16) Spot-check vendors and partners.

Call them and confirm payment amounts and that they're actually real.

17) Walk-around/drive around.

Theft can happen all the time. You can often find it by just getting out from your desk.

We caught a guy buying metal and selling it because we saw our truck parked at the recycler!

18) When you catch someone, don't let it slide.

If people realize you're running a loose ship, they'll potentially be more likely to steal themselves.

The cops are using not going to do anything unless you're famous.

But you can sue in civil court. Send a message.

With theft, it's inevitable and going to happen.

All you can hope for is the bad people look at you as a less desirable victim and pick on someone else.

The way to do that is to run a tight ship!

And that's all I got today folks.

Be safe out there.

(If folks have other suggestions/techniques, add them here!)

Inspired by reading this today. It’s fun so far and starts off with... some fraud!