Insights

10 Affordable Strategies for Preventing Fraud in Purchasing

Small organizations often face resource constraints in preventing and recovering from fraud, with a heavy reliance on employee trust due to limited internal controls. The 2018 Global Study of Occupational Fraud and Abuse by the Association of Certified Fraud Examiners revealed key findings for small businesses, including higher losses per fraud scheme, a median loss of $200,000 for employees with over 5 years' tenure, and 42% of frauds resulting from a lack of internal controls.

In the digital age of online purchases and electronic payments, the trail of information is digital, making it vulnerable to destruction, alteration, or unclear descriptions of expenses. Only 15% of businesses in the study managed to recover losses, and the likelihood of recovery decreased with the magnitude of the loss.

Here are 10 cost-effective fraud prevention measures for online purchases and electronic payments:

1. Establish guidelines or policies for appropriate expenses before making purchases.

2. Implement monthly budgets and generate budget-to-actual reports to monitor overall spending.

3. Enforce a documented bidding process for larger purchases, with the purchaser being a different person from accounting.

4. Limit the number of credit cards, access to credit card information, and credit limits.

5. Maintain separate credit cards or accounts for recurring expenses like payroll or subscriptions.

6. Use a dedicated email address for online purchases, with confirmations sent directly to this address and copied to purchasing and receiving.

7. Ensure that all business packages are delivered to the workplace, opened, and inventoried by someone other than the person who placed the order.

8. Require a street address and social security or tax ID numbers for each vendor added to the accounts payable vendor list, excluding P.O. box numbers without a street address.

9. Prioritize approval for payments made through third-party processors like PayPal, Venmo, or Apple Pay.

10. Establish a budget for employee expenses to be reimbursed before they are incurred, preventing misunderstandings and duplicate reimbursements.