Preventing unexpected internal losses

Last Tuesday, my colleague John Capizzi, Principal of Internal Audit Services, Inc. International and I presented to the Diversified Real Estate Investor Group (or DIG) at the London Grill, on unexpected internal business losses – otherwise known as internal fraud or theft. Here are a few of the highlights.

If you experience a business loss, it may be due to inattention or expectation. Perhaps a business owner trusts others to handle his books and records for him so he can concentrate on other things – like the back nine at Bala Golf Club. But a small business owner depends on that business’s profitability not only for income now, but also for his retirement – so why delegate it to someone else? An owner may be complacent or absent, causing employees to believe there are no repercussions if they take from the business. An owner’s attention may also be diverted because of an internal power struggle, an emergency, or a shift in management. That’s no excuse for not watching your business’s profitability closely.

The owner may also expect to lose money in the short term. Think about a business that’s expanding into a new product line. An owner will expect to see money being spent on new equipment, furniture, attorneys’ fees, employees, accountants, and supplies, and may expect to see a loss in the short term. That loss may be accelerated by employees who pad bills, issue phantom invoices, or slip their own phone bills in with the business’s bills.

How can you protect against internal loss? Just a few ideas: Be vigilant. Open business bank account statements. Double-check figures. Spot-check invoices on a monthly basis. Most importantly, make your employees feel appreciated and acknowledged.

If you have questions about business loss or suspect internal theft, call Bloom & Bloom.

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