5 Costly Mistakes To Avoid In A Business

5 Costly Mistakes To Avoid In A Business

If you hire employees for your business, this is one of the articles that you can not lose. You work hard for your business and it is only natural that you want to get fruits of your labor. However, do you know that profits could literally walk out the door for lack of good internal controls and procedures every day?
When an employee steals $ 100 from you, have you ever wondered how many additional sales they would have had to produce to compensate for the loss?
If you work 10% of the Net, it takes $ 1,000 in revenue to make up for $ 100 profit, you were an employee. As percentage of net profit goes down, the number of sales needed to compensate for loss of profit dollars more.
Business owners tend to agree that when most of the first employees to join the company, which are basically honest. Most employees really want companies that have joined together to perform, so they can also benefit in terms of receiving better wages, bonuses and career advancement.

But basically honest people may be tempted to commit fraud in the company when the three elements of fraud that occur are present, namely:
• Pressure - the cause of the fraud, for example, a major need for money, recognition, etc.
• Capacity - the ability to commit fraud, for example, in the presence of weak internal controls, management control, etc.
• rationalization - the ability to justify a fraudulent act
As a business owner, you can not do much about the two "pressure" and "rationalization", you should check that the second "opportunity." The ability to control the "opportunity" effectively to significantly reduce the risk of employee fraud in your business.
Small businesses are particularly vulnerable. Typically, these organizations have much less control is to protect the resources of fraud and abuse. Managers and owners of small businesses should focus their investments in cost-control mechanisms more effective to prevent and detect fraud, the specific mechanisms that cause the greatest risk to their business.
There are many internal controls, you can set up your various business processes like procurement, income, assets, human resources and accounting processes to manage the risk of fraud. Here are the 5 critical errors internal control to prevent a company:
1. Inadequate segregation of duties

Fraud in the events, such as whether the system marks, exfoliation and payroll fraud, are much more common in smaller organizations than any other entity. This is due to work conflicts - Check writing to collect contributions and payroll functions, respectively, are more likely to make an individual, as an accountant, and often have fewer follow-organization of a small company where a large tasks are separate operations and licenses formalization.
Segregation of duties is one of the key concepts of internal control. It is also one of the most effective controls in the fight against internal fraud by employees. Separation of the system helps an organization of checks and balances. The concept of separation of functions is to separate these responsibilities in each business process:
• asset-custody services
• Record keeping
• Authorization
• Reconciliation
Ideally, no employee should be treated in some individual works are in the process. When the activity can not be separated, a business owner or manager must take into account there to replace the control. Compensating controls are controls to perform a self-employed, which does not have custody, accounting, or permission of responsibility defined in the reconciliation process.
2. Inability to manage system privileges are granted to employees

Most companies today are based on at least some form of information systems to assist in their operations and processing of data. In the absence of adequate controls over access rights granted to the personnel system, personnel may be more inclined to engage in fraudulent activities, especially when access rights are granted in excess of the system. It is therefore very important to ensure that the access rights granted to all employees are aligned with their roles and responsibilities within the company.
A formal documented safety management should be in place to ensure that all requests for new access rights to applications and data system duly approved by the respective business units. A review of access rights allow employees should also be used by management business unit on a periodic basis to ensure that access privileges granted based on job responsibilities over time
3. Inadequate supervision

Many companies are losing money because of the lack of monitoring of operations and financial records. Although most large companies have some form of review of management controls, processes, accounts or transactions in place, most small businesses can not have the resources to implement the same type of mechanism often.
Monitoring is particularly critical when the rights of employees can not be separated effectively. It is very important for owners and business managers to understand that "Profit is an opinion, cash is a fact." The amount of profit can be easily manipulated using different accounting treatments, but the amount of cash in the bank account is a bank account at any time. In addition to monitoring the numbers of income and profits, the owners and managers of companies should also carefully monitor the amount of cash that is available in the bank.
Business owners and managers must ensure that reconciliation is performed periodically important financial information, such as cash flow or income. Reconciliation is the process of comparing transaction activity and supporting documentation to ensure the accuracy and validity of the piece of financial information. It can easily be done by comparing the relevant accounts for the independent source documents or material support from external sources. For example compare the amount of discount in force for reconciliation of cash shown on the monthly statement (a document issued by a bank, summarizing deposits, checking payments and other debits and credits) with the amount of Cash recorded in general corporate book with all the differences between the two documents are properly recorded.
4. Inappropriate tone at the top

Tone refers to the upper atmosphere to create an ethical work environment, management of the organization. Whatever the management sets the tone of the trickle-down effect employees of the company. For example, if the leadership seems indifferent to ethics, and focused exclusively on the bottom line, employees are more prone to fraud because they feel that ethically do not focus or priority within the organization.

Therefore, it is crucial to the success of executives and managers set the tone for how employees behave ethically at work, and to transmit this confidence to all employees. Companies should establish a code of ethics that includes a concise compliance standards that are compatible with the ethics of management policy in the industry. This Code of Ethics should be adequately inform each employee is required to read and recognize.
Companies should also implement a whistleblowing program as a confidential hotline. Mention of such a fraud, confidential hotline to prevent fraud. Intensive promotion of a number of anti-fraud hotline for employees sends the message that society is to promote an ethical environment by allowing employees to report misconduct without fear.
5. Lack of knowledge about fraud and the importance of internal controls

Scammers are known to show behavioral warning signs of their crimes. These red flags - how to live beyond their means, or exposure of things - not be identified by traditional controls. Unfortunately, the unfamiliarity with the red flags of fraud has always been one of the key challenges for the municipality to protect the company against fraud.
Business owners and managers can easily agree that employees are the eyes and ears of a company if something goes wrong, you probably know before management or auditors. The staff is one of the best most effective mechanisms for detecting fraud in an organization. The Global Fraud Survey 2010 published by the Association of Certified Fraud Examiners (ACFE) revealed that fraud is detected by the councils, with employees is the most common source of advice.
Training employees is the basis for the prevention and detection of fraud work. All employees (including senior officers) should receive training and prevention of fraud detection. This training may take the form of classroom training or individual coaching and should cover the position of the company's corporate compliance and the roles and responsibilities of employees to report misconduct of the organization. Employees must be trained to recognize common behavioral signs that fraud is ongoing and encouraged not to ignore these warning signs, as it could be the key to detecting and preventing fraud.
Besides the five above-critical errors to avoid internal control, there are many internal controls over owners and managers of companies should take note. While internal controls to prevent go a long way to minimize the risk of fraud of a company, it is impossible to completely eliminate fraud. It is important for organizations that have also introduced mechanisms to detect violations and monitoring additional episodes to minimize unnecessary losses for the company.
Sylvia Lim is Director of excellence Link Associates, a firm of risk management companies based in Singapore. She specializes in internal control reviews, coaching and training fraud awareness and internal controls. Sylvia is a Chartered Accountant and Certified Internal Auditor. Visit http://www.excellencelink.com info@excellencelink.com or email for more details on risk management, internal control and fraud prevention.

Posted in: Risk Management