10 Powerful Steps to Reduce Fraud

By Charles Hall | Fraud

Aug 12

As businesses grow, the risk of theft increases. In this post, I offer ten powerful steps to reduce fraud.

Windows open. Curtains blowing. The sound of crickets and an occasional train in the distance. It was a simple childhood. It was my childhood. My mother parked her black Ford Falcon and left the keys in the ignition. The doors to our home were unlocked. We trusted our neighbors and they trusted us. And why would we not? We’d known each other forever.

steps to prevent theft


But then one night at the dinner table, my father said, “someone stole Miss Gussie’s Chevy.” Unthinkable. Our innocence was broken, and soon my mother took precautionary measures. Each evening, after parking, she would place the car keys under the car seat. No need to take chances. We began to close the windows at night, but still, the back door was left unlocked in case my father needed to go out for a smoke.

A couple of months later, I overheard my mother whispering to my grandmother that a man slithered into Miss Kidd’s house in the dead of night and had taken valuables. Miss Kidd lived diagonally from our home, just a stone’s throw away. To think that someone just walked–unannouncedinto the octogenarian’s home. How could this be?

Fear was palpable. Our neighborhood’s character shifted. No longer would Mom leave the keys in the car. No longer would we leave the windows open. No more cricket sounds. And my father even locked the back door.

Safely we would sleep, not because there were no threats, but because of protection.

Recognizing Risks In Growing Businesses

The evolution of internal controls is no different. Maybe, early in the life of your business, you wrote all the checks and made all the deposits. You tracked all the transactions. There was no fear of theft because life was simple. You did everything, including taking out the trash.

But then the business grew, and you began to hire staff to assist with the accounting. At first, just one bookkeeper. Then two. Later you brought in your second cousin to take care of billing and collections. New bookkeeping software was purchased, and you began to accept payments over the Internet. My, how things change, and change is a good thing, right? In some regards.

But as changing neighborhoods create new risks, so growing businesses create new threats. And increasing complexity brings about a higher chance that valuables will disappear in the night.

Sometimes business owners fail to see new risks as their businesses grow. They are fish in the fishbowl. Therefore, the owner may need someone external to the company to peer in. Risks must first be identified before they can be lessened, but the one gazing in may need special viewing abilities. An accountant may understand debits, credits, and even accounting standards but not have the ability to see internal control weaknesses. So hire a CPA or CFE with the appropriate skill set.

Just as medical doctors specialize in particular health-related areas, so do CPAs and CFEs focus upon specific accounting niches. When I had a brain tumor, I did not consult with a general practitioner; I saw a brain surgeon. He saved my life (thanks, Dr. Williams). Using the right accounting professional to review your internal controls may save your business.

10 Powerful Steps to Reduce Fraud

As your business grows, here are suggested steps to create a safer accounting system:

  1. Know that the risk of theft increases as complexity increases (often a result of business growth)
  2. Hire a professional with fraud prevention experience and training
  3. Have the expert map your accounting processes with an emphasis on control weakness identification
  4. List and prioritize the identified internal control weaknesses
  5. Determine how you will deal with each risk (accept, transfer, or mitigate)
  6. Develop controls to address the weaknesses
  7. Develop a plan to monitor the internal controls (monitoring can range from daily to once a year depending on the threat)
  8. Provide periodic internal control reports to management and those charged with governance
  9. Reassess risks at least annually and repeat the above
  10. Sleep well–-you’ve taken the right precautions

If you are a new business (and you feel like the above is more than you need), click here for two simple steps to minimize the risk of theft.

One last thought: Review your insurance. When all else fails, sufficient coverage can save you.

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About the Author

Charles Hall is a practicing CPA and Certified Fraud Examiner. For the last thirty years, he has primarily audited governments, nonprofits, and small businesses. He is the author of The Little Book of Local Government Fraud Prevention and Preparation of Financial Statements & Compilation Engagements. He frequently speaks at continuing education events. Charles is the quality control partner for McNair, McLemore, Middlebrooks & Co. where he provides daily audit and accounting assistance to over 65 CPAs. In addition, he consults with other CPA firms, assisting them with auditing and accounting issues.

  • Charles Hall says:

    Armando, I bet that client loves you! $50,000 is no small change.

  • armando balbin says:

    Having the billings on accrual basis is an effective good control procedure. Not too long ago I performed an audit of a NFP that had several contracts with the State of California. The cash collections were kept on a cash basis, converted to accrual at year-end. When I tested the billings-collections, I was short about $50,000+. A further investigation resulted in an uncollected State check for exactly the same amount I was short, that apparently got lost in the mail; supposedly, no one became aware of it.

  • Benson Dana, CPA says:

    This is fine. It’s quite high level and not all the steps will be applicable to every situation. A future post might introduce a sense of scale, which is hinted at here. In the evolution of a small business, would you begin by address a sole proprietorship as it begins adding staff in response to growth, and how each step might trigger a step up in complexity and certain areas that need to be addressed? The narrative and trajectory might be slightly different for a start-up with capital that begins life with 2 or more owners and a small staff.

    The issues surrounding inventory of any kind suddenly increase internal control complexity to a significant degree, as does any retail situation which exposes the business to vendor and customer theft. I like to specifically and directly include any non-profit organization in any discussion of internal controls and theft. They seem to believe that they’re immune because they focus on doing good work. Those are dangerous blinders.

    There are not enough well written books out there that do anywhere near a good enough job at providing the kind of concrete and practical guidance the business world seems to need desperately. I smell a book in the making. I’d love to write one of those books, but I fear I’m too lazy.

  • Benson Dana, CPA says:

    I should have said ANOTHER BOOK.

  • Charles Hall says:


    You should write another book. What is your first one?

    I wrote The Little Book of Local Government Fraud Prevention about two years ago. I understand the “lazy” factor; writing the book (my first) was much more difficult than I anticipated. But I did finish — thought there were many times when I had my doubts about completion.

    I agree with you: “There are not enough well written books out there…providing the kind of concrete and practical guidance” needed. So let me know when you finish this next one. I am sure I would enjoy it.

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