How can undetected fraud affect a company? Undetected fraud cash theft and problems with inventory. Protecting a company against loss, even a small company, involves setting up a systems of checks and balances for money and inventory.
- book keeping system
- inventory system
- copies of both inventory and financial books for the past seven years.
- Loss of Cash. The money trail is an easy way to explain how undetected fraud can affect a company. A company dealing in cash runs the risk of massive fraud, if a tight and secure system is not in place to accept funds and track inventory. Frequent collection of cash and putting large bills into a safe immediately when the money is taken in are two ways to cut down on losses. Fraud also occurs when making change from large bills. This system frequently involves several buyers and one employee who brings in small bills and takes out large amounts of incorrect change. Cash losses can be significant and impact a company in a major way. If the company bookkeeping system tracks cash losses once a month or several times during the year, the cash drain may do a company in. The person doing the books has large margins for fraud when dealing with cash. The owner of the business should monitor cash flow to estimate the daily intake. This can be reconciled with the official books.
- Loss of Inventory. Loss of inventory can also impact companies. Random checks on sales and cash receipts help detect this type of fraud, but must be done in a timely manner to catch large-scale fraud before it empties the company's bank account. Employees taking home a few samples or buyers with a five-finger discount can reduce profits to nothing in short order. The inventory may not even make it to the store. Theft from loading docks and back loading doors happen when deliveries are made. Matching the invoice with the number of boxes as the truck delivers the good is A wise idea. Boxes should also be placed in a safe place upon delivery. Counting items as the specific pieces are unpacked also guards against loss. Requiring employees to sign off places the blame for loss on a single person and the risk for exposure is usually too high for one person to take alone.
- Loss of Reputation. Fraud can also occur by companies supplying products to a reseller. Fakes and imitations are substituted for the real deal by companies defrauding the buyer. Failure to check each load of goods for authenticity can mean disaster if an official inspection finds frauds and all of the goods are confiscated. Customers expecting, and paying for, the real deal will not return to the store to buy anything if the products offered are not authentic.
- Exposure to Product Liability. Fraudulent products also subject the business owner to lawsuits arising from use of the bad goods. Fake products may not meet safety or health standards. The business owner may be sued for products that create hazards or impact the health of the buyers. Food products and drugs are usually a major concern, but products sold for child use may also expose a business to fines and penalties. Leaded paint and plastics used in inexpensive knock-offs contain contaminants that make children ill or cause disease. This type of fraud may go unchecked for years before a health claim takes down the unsuspecting company. Testing a random box of inventory for contaminants helps a business discover fraud by wholesalers.
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