Small and mid-sized businesses (PME) are occasionally more vulnerable to fraud
because they frequently have fewer control mechanisms!
Fraud is divided into three major categories:
- Fraudulent documents
This section of the guide gives you 10 basic rules from the Chambre des notaires
(Professional order of notaries in Quebec)
Rules for prevention of theft and fraud within the business:
1. Have a written contract
2. Select good employees
3. Establish a zero tolerance policy
4. Keep an open eye
5. Practice good accounting
6. Manage the merchandise and equipment
7. Use security systems
8. Control access points
9. Manage data access
10. Manage telephone lines
Have a written contract
Theft and fraud between associates exists more often than we think. You have
one or more partners? Put the terms of your agreement in writing. Here is a
list of points to include in your agreement.
- Identification: name and address of the business (complete
address, telephone, fax numbers and e-mail address, Web site); names and
addresses of the partners.
- Object: description of the type of business and the work,
products or services offered; with details in an annex if necessary.
- Term: date the agreement enters into effect and expires.
- Obligations: titles and responsibilities of each partner
towards the company, work, products or services.
- Representatives: names of individuals in charge of projects
and other agents (persons authorized to replace the partners).
- Compensation: salaries, dividends, reimbursable expenses,
conditions, manner of invoicing, etc.
- Insurances: responsibility insurance, performance insurance,
life insurance, etc.
- Confidentiality: list of what is confidential (ex.:
business plan, client list) and duration of this confidentiality clause
(ex.: until 3 years after the end of the agreement).
- Copyrights and intellectual property: list of copyrights
belonging individually to the partners (ex.: products developed before the
agreement) or to the business.
- Modifications and restrictions: limits to the agreement;
generally impossible to modify without written authorization by the parties.
- Termination: reasons allowing for termination of the agreement
(sale, serious illness, illegal act by one of the associates, etc.)
and conditions (liquidation or division of the shares, debt, etc.).
- Financing: sharing of the investment, profits and losses.
- Signatures: identification of the parties and witnesses
in block letters, date, location and signatures.
Read your agreement in its entirety before signing, including
the fine print! Take the time to fully understand all clauses. Verify the references
of your partners (clients, suppliers, etc.). Need help? Consult a notary
who specializes in corporate law. He will help you to draw up your agreement.
Top of the page
Select good employees
According to a study by Samson Bélair Deloitte & Touche, one employee
in three steals from his employer. Whether it is a theft of cash, merchandise,
equipment, materials, services, long distance phone calls, time or information,
it translates into a loss for the business. Here then are a few hiring tips:
- Invest the necessary time to examine candidates' files.
- Seek trustworthy and honest individuals.
- Pay particular attention to individuals who will handle cash, negotiate
with your suppliers or manage your merchandise.
- Choose motivated individuals who will integrate quickly. They will have
your best interests at heart.
- Establish realistic objectives (job descriptions, working hours). Be sure
that they are agreeable to the recruited candidates.
- Offer a fair remuneration.
Top of the page
Establish a zero tolerance policy
Establish clear rules for conduct and specify the sanctions.
Ensure that your employees understand them well. Use a team
meeting or training sessions to announce them.
Establish good communication channels. Invite your employees
to advise you of any suspicions. Assure them that all information will be handled
Listen to your employees. Resolve all conflicts promptly.
Inform your employees that you will conduct random checks without advance notice. Choose sectors such as the accounting department, purchasing,
sales, shipping and management of supplies.
Top of the page
Keep an eye open
By keeping an open eye, you will quickly know where to intervene. Choose sector
control points or strategic moments: reception, delivery, arrival and departure
of employees, etc. Put the following suggestions into practice:
Payroll preparation - Have the preparation and distribution
of payroll done by two employees, belonging to different work teams.
Accounting - Avoid entrusting the entire accounting
to the same person.
Inventory control - Assign the recording of inventory to an employee who
does not participate in the physical count.
Confirmation of delivery - Ask employees other than those
in shipping to match the acknowledgement of receipt with the corresponding invoices.
Confirmation of sale - Have employees that pack the merchandise
verify the prices entered on the invoice by a clerk or cashier.
Control of shift employees - Ensure that the employees
who remain after closing are authorized to do so.
Unusual behaviour by employees - Be wary of employees
who insist on performing certain duties which are not their responsibility.
Improving controls - Use your periodical inspections
to identify trustworthy employees. They could help you to improve controls or
supervise duties in a department other than their own.
Don't be content with dismissing an employee caught in a theft or fraud. Inform the police too.
Watch everything that enters or leaves your business, even garbage pails! Employees could hide stolen goods in them.
Top of the page
Practice a good accounting
Anyone wishing to prevent theft and fraud should see to the rigorous control
of expenses and income. Here are a few suggestions,
Purchase orders - Use numbered purchase orders for all
Packing slips - Compare packing slips with your purchase
orders (ideally numbered) in a manner to prevent frauds (dual numbers, fraudulent
payments, destruction of documents). Put the necessary mechanisms into place
to confirm receipt of merchandise.
Credit cards - See that all expenses incurred on the
company credit card had prior authorization.
Cheques - Retain cheque-signing authority for yourself
or entrust this task to a person of trust. Keep your chequebooks under lock.
Before issuing a cheque, verify the supporting documents (invoices, receipts).
Expense controls - Establish a limit (ex.: $100) over
which all expenses must be submitted to you for approval.
Expense accounts - Closely monitor reimbursement of expenses.
Some employees or associates inflate their expenses or attempt to be reimbursed
twice by presenting the same receipt. Verify authorized mileage.
Deposits - Make the deposits yourself. If you delegate
this task, ensure that the sums were fully deposited.
Discounts - Personally approve all forms of discount before
they are offered to a customer.
Bank statements - Ask the bank to address the bank statements,
chequebooks and other documents to you personally. It could be useful to receive
this type of correspondence at a postal box rather than at your business.
Payroll time report - Establish rigorous measures
to verify the number of hours performed by your employees. Falsification of
this data is one of the most common offences.
Invoices - Closely monitor everything involving invoices.
Use a numbered system.
Payroll - Regularly verify payroll. One of your associates
or a service director could authorize fictitious work and pocket the amounts
Pricing - Develop a precise policy for sales pricing
in order to prevent frauds. Label your merchandise. Ensure that the prices requested
of your customers correspond with those on your price list. A salesman could
invoice your customer at one amount, produce a receipt for a lesser amount and
pocket the difference.
Cash drawers - Ask your supplier about security systems
for cash drawers. Surveillance cameras record the movements of employees and
can integrate the amount, date and time of each transaction with the
Top of the page
Manage the merchandise and equipment
Do you truly know where your inventory and equipment are? Attentively examine
Receiving - Ensure that products received are entered
in your inventory.
Delivery - Seal the boxes in such a manner that the delivery
personnel cannot open it prior to delivery to the client.
Complaints - Involve yourself in customer complaints
pertaining to invoicing, discounts or questionable delivery practices. You might
catch somebody in your company stealing.
Inventory of stocks - Without notice, periodically count
the stock personally.
Delivery doors - Lock the delivery doors at all times.
When they are opened for a delivery, they should be under constant supervision.
Equipment - Ask your local police station about having
your expensive or important equipment engraved. Draw up and maintain current,
a precise inventory of all your office equipment with the description, model
and serial number of every article. Keep this inventory sheet in a secure location.
Empty boxes - Ensure that your inventory is not being
removed with «empty boxes». Have your employees fold and stack all
Top of the page
Use security systems
Do you have a good security system? It is important. To discourage theft and
fraud by your employees or associates, here are three suggestions:
1. Install a video surveillance system in locations where cash or merchandise
is handled (warehouse, store, cash drawer, etc.). Make sure
you have quality tape in your video recorder. Otherwise, recorded images will
make identification of suspects difficult. Digital equipment supplies a clear
and precise image.
2. Affix posters and decals. Place them in plain sight at
points of access to indicate to everybody that the business is protected by
a security system.
3. Have good lighting. To record good images, cameras need
light. See that places which are covered by your surveillance cameras are well
lit (cash register, entrance door, warehouse, etc.) and remove boxes
or other objects which could interfere with their field of vision.
Top of the page
Control access control
By access control, we mean: control of keys, codes, combinations and locks.
Combinations, keys and access codes - Never give the
combinations for access systems, safe or alarm system or even duplicate keys
to anyone other than trusted employees. Change your codes, combinations and
locks whenever an employee is terminated or resigns. Avoid leaving your keys
within reach of everyone.
Duplicate keys - Rigorously control the number of duplicate
keys in circulation. Forbid their duplication without your authorization. In
a register, record dates and names of persons to whom you have assigned keys,
or again, to whom you communicated information concerning combinations which
provide access to the safe or to limited access zones.
Departure of an employee - When an employee leaves the company
without returning his key, change the locks, access codes and combinations (alarm
system, safe, etc.).
Keys for controlled locks - Ask your locksmith about
keys for "controlled locks". One cannot copy them without written
authorization from the holder of the reproduction licence. They cost more, but
it is a profitable investment.
Leave all your important or confidential papers under lock and key: chequebooks,
contracts, accounting and other documents.
Top of the page
Manage data access
Be attentive to hackers accessing your computer system! Think of the impact
which it would have on your business if an employee or partner deliberately
altered or destroyed your computer data: payroll list, cost and price analysis,
employee codes, development plan, market strategies, customers' list, etc.
To control access to your computer system:
- Begin by assigning a password to every computer. Change it regularly.
- Store laptops under lock and key in a filing cabinet or affix them to the
desk with a security device which is capable of being unlocked, when needed.
- Make copies of your important data. Secure them in a location other than
your business or your company.
Moreover, the Internet assumes more and more importance in business. Watch
that documents which are forwarded via data networks are transmitted in a confidential
and secure manner. For example, use a digital signature.
The digital signature allows one to protect the confidentiality of documents
in a workstation, on a server or on a floppy disk. It also allows one to protect
documents transmitted by e-mail for three reasons:
- the receiver is assured that the "document received " is identical
to the "document sent" (integrity of data);
- the identity of the sender is automatically confirmed (authentication of
- The receiver cannot deny having received the document (non-repudiation
To better understand how digital signatures can help you prevent frauds, communicate
with Notarius. This division of the Chambre des notaires du Québec (Professional
order of notaries in Quebec) specializes in technological options. You can reach
the professionals from Notarius at the following numbers: (514) 281-1577 or
1 888 588-0011 or visit their website at www.notarius.com.
Top of the page
Manage telephone lines
The telephone, facsimiles and the Internet are necessary work tools for the
proper functioning of your business. However, certain fraud artists do not hesitate
to abuse it for personal reasons (long distance calls, visits to Websites, etc.).
They leave you with the surprise of excessive and unjustified telephone bills.
Establish and clearly communicate strict measures concerning the use of telephone
lines, to your employees. Limit long distance access to certain employees only.
Authorize these calls only from your premises.
Top of the page