Make Your System Fraud-Proof

The first and one of the most important things an owner-manager should do is to set a good example. Your employees watch what you do and are prone to imitate your habits - good or bad. An employer who dips into petty cash, fudges on an expense account, uses company funds for personal items, or sets other examples of loose business behavior will find employees rationalizing dishonest actions with the attitude "if it's good enough for the boss, its good enough for me."

Another important way an owner-manager can discourage embezzlement is by establishing a climate of accountability. Employees should know their jobs and feel trusted. But they should also realize that they are held accountable for their actions. To some people, management indifference in financial administration is a license to steal. That's why it is important for you to examine your procedures and determine what controls can be added to forestall any dishonest practices. And, just as important, the system should be designed to help document evidence in the event someone does try to embezzle your funds. One problem in fidelity loss claims is that of proving the amount that was stolen. The owner-manager has to support a loss claim with evidence - facts and figures that you get from your records.

Reliance for prevention and detection of fraud must be placed principally upon an adequate accounting system with appropriate internal controls that safeguard your assets. Your public accountant can be of great help in setting up a good record-keeping system. Then it must be tested and evaluated at least annually by the auditor. The purpose of periodic examination is to make sure that there are no loopholes through which an embezzler can manipulate your funds.

One fundamental control is separation of the duties of employees. For example, persons concerned with receiving checks and cash should not also be responsible for the entries in the accounts receivable records. No one person should handle a transaction from beginning to end. If you do not exercise tight control over invoices, purchase orders, discounts, customer credits, and so forth, you are asking for trouble.

You should insist that your accounting system provide you with operating statements issued at least monthly. These will inform you of the operations to date and the firm's financial condition. You can use these documents to compare the figures with prior periods. Any unusual or unexplained variations should be discussed with your public accountant to determine the reason.

Look For Clues

You know how in medicine the symptoms of one disease often resemble those of another. Likewise in business the symptoms, or danger signs, of an embezzlement are often caused by other factors. Here are a few clues which indicate that either an embezzler is at work in your company or certain aspects of the business need more of your attention.

Increase in overall sales returns could be caused by defective merchandise - or it might represent a concealment of accounts receivable payments.

Unusual bed-debt write-offs can be due to a number of business reasons - or they could be covering up a fraudulent scheme.

A decline or usually small increase in cash or credit sales might mean that business has not been good - or it could mean that some sales were not being recorded.

Inventory shortage can be caused by error or mismanagement - or they could indicate fictitious purchases, unrecorded sales, or employee pilferage.

Profit declines and/or increases in expenses can be entirely legitimate - or they could be a sign that cash is being siphoned off illegitimately.

Slow collections can be caused by business conditions - or they can be a device to mask an embezzlement.

Ounces Of Prevention

There are many steps an owner-manager can take to cut down on the possibility of losses through embezzlement. Do you take the following precautions?

1. Check the background of prospective employees. Sometimes you can satisfy yourself by making a few telephone calls or writing a few letters. In other cases, you may want to turn the matter over to a credit bureau or similar agency to run a background check. (Keep in mind that the rights of individuals must be preserved in furnishing, receiving, and using background information).

2. Know your employees to the extent that you may be able to detect signs of financial or personal problems. Build up rapport so that they feel free to discuss such things with you in confidence.

3. See that no one is placed on the payroll without authorization from you or a responsible official of the company. If you have a personnel department, require that it approve additions to the payroll as a double check.

4. Have the company mail addressed to a post office box rather than to your place of business. In smaller cities, the owner-manager may want to go to the post office to collect the mail. In any event, you or your designated key person should personally open the mail and make a record at that time of cash and checks received. Don't delude yourself that checks or money orders payable to your company can't be converted into cash by an enterprising embezzler.

5. Either personally prepare the daily cash deposits or compare the deposits made by employees with the record of cash and checks received. Make sure you get a copy of the duplicate deposit slip or other documentation from the bank. Make it a habit to go to the bank and make the daily deposit yourself as often as you can. If you delegate these jobs, make an occasional spot check to see that nothing is amiss.

6. Arrange for bank statements and other correspondence from banks to be sent to the same post office box, and personally reconcile all bank statements with your company's books and records. The owner-manager who has not reconciled the statements for some time may want to get orientated by the firm's outside accountant.

7. Personally examine all canceled checks and endorsements to see if there is anything unusual. This also applies to payroll checks.

Everyone Requirements To be knowledgeable about the Decision Making Process. All of us rely on advice, and tools or techniques, to
help us in our everyday lives.

When we head out To eat, the restaurant menu is the tool which supplies us with the information required to choose what to
purchase and how much to invest.

Running a Business also requires making conclusions using techniques and information - how much stock to maintain, what price to
sell it in, what credit arrangements to provide, just how many people to hire.

Decision Making Procedure in business is the systematic procedure for identifying and solving issues, of asking questions and
finding answers. Decisions are created under conditions of uncertainty. The future isn't understood and occasionally even the past
is suspect. This manual opens the door for company owners and managers to find out about the variety of techniques that may be
utilised to boost your decision making process in a world of doubt, change, and uncontrollable conditions.

A General Approach to Decision Making Process. If a scientist, or an executive of a significant corporation, or a small business
owner you are able to benefit from improving your decision making skills. The overall solution to systematically solving issues is
exactly the same. The following 7 step approach to better management decision making can be used to study nearly all problems
faced by a business.

State the problem. A issue first must exist and be realized. What's the issue and why is it a issue. What is ideal and how do
current operations vary from that ideal. Identify why the symptoms (what's going wrong) and the triggers (why is it going wrong).
Attempt to define all terms, theories, factors, and relationships. Quantify the problem to the extent possible. In case the issue,
not correctly and fast fulfilling customer orders, try to ascertain just how many orders were incorrectly full and the length of
time it took to fill them.

Establish the Objectives. What are the goals of the study. Which objectives are the most critical. Objectives are said by an
action verb like to reduce, to grow, or to improve. Returning to the client dictate problem, the major objectives would be: 1) to
increase the proportion of orders filled correctly, and 2) to decrease the time necessary to process and order. A sub-objective
could include to simplify and streamline the order fulfilling process.

Grow a Diagnostic Framework. Next set a diagnostic frame, that is, decide what approaches will be utilized, what kinds of
information are required, and also how and where the information is to be found. Is there going to be a customer questionnaire, a
summary of business documents, time and motion tests, or something different. What are the assumptions (facts supposed to be
correct) of this analysis. Which are the criteria used to evaluate the study. What time, budget, or other constraints are there.
What type of qualitative or other special techniques are going to be used to examine the information. (Some of which will be
covered shortly). To put it differently, the diagnostic framework establishes the extent and processes of the entire study.

Collect and Analyze the Data. The next step is to gather the data (by following the methods established in Step 3. Raw data is
then tabulated and coordinated to facilitate analysis. Tables, graphs, charts, indexes and matrices are a number of the standard
ways to organize raw data. Analysis is your critical prerequisite of sound business decision making. What does the data show. What
facts, patterns, and trends can be seen in the data. A number of the qualitative methods covered below may be used during the step
to determine details, patterns, and trends in data. Of course, computers have been used extensively during this step.

Generate Alternative Solutions. After the analysis has been finished, some specific conclusions about the character of the problem
and its resolution should have been achieved. The next step is to create alternative solutions to this issue and rank them in
order of the net benefits. But how are alternatives best generated. Again, there are several well established techniques like the
Nominal Group Method, the Delphi Method and Brainstorming, among others. In these methods a group is included, all of whom have
examined the data and analysis. The approach is to have an informed group indicating many different feasible solutions.

Develop an Action Plan and Implement. Select the ideal answer to the issue but be certain to understand clearly why it is best,
which is, the way that it accomplishes the objectives created in Step 2 greater than its alternatives. Then create a productive
method (Action Plan) to implement the solution. At this point a significant organizational consideration arises - who will be
responsible for seeing the implementation through and what authority does he possess. The chosen manager should be accountable for
seeing that all deadlines, tasks, and reports are performed, fulfilled, and composed. Details are all important in this step:
schedules, reports, activities, and communication are the key elements of any activity plan. There are several methods available
to decision makers implementing an action plan. The PERT method is a way of laying out an entire interval such as an action
program. PERT will be covered shortly.

Evaluate, Obtain Feedback and Monitor. Following the Action Plan was implemented to Fix a issue, management has to evaluate its
effectiveness. Assessment Standards have to be ascertained, feedback channels developed, and observation performed. This Measure
ought to be done following 3 to 5 weeks and again at 6 weeks. The goal is to answer the main point question. Has the problem been
solved?

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