Risk Reduction

Risk Reduction

Small business owner and entrepreneur Cheryl Obermiller of Obermiller Construction Services, based in Harrisonville, Mo., was the victim of major embezzlement. Over an eight-plus year period, Obermiller’s accountant stole more than $1 million by simply forging checks.

“I had three to four crews running over six states,” says Obermiller on an episode of the radio show “FraudTalk.” “Hundreds of things going in and out each month. It would have been easy to catch had I known what to do, but I didn’t.”

Obermiller is not alone. She says that a small business is 100 times more likely to be embezzled from than a larger company and more than a one-third of failures are due to an employee’s theft. “Everyone has 1 to 2 degrees of separation from an embezzlement, yet nobody thinks it will happen to them.”

Most fraud is easy to prevent, and technology can be a guardian. Small business owners can reduce the risk of fraud by using technology to help pay careful attention to the flow of information, integrate existing systems and implement strong internal controls.

Get With the Flow
First, small business owners should think about risks in advance and look at their entire technology platform to find ways to help mitigate risks. “They should use technology to empower them to more effectively monitor their business and get alerts,” says Dr. Sandra Richtermeyer, CPA, Certified Management Accountant, , associate dean of the Williams College of Business, Xavier University, based in Cincinnati, Ohio. “If used appropriately, technology will alert to key risks: cash flow, customer problems, supplier problems.” That way, small business owners will be in a much better position to react more quickly to problems that may occur. “If you don’t have a way to monitor key risks, they may be stopped dead in their tracks,” she says.

Many accounting systems can be set up to alert you of cash flow problems. “Automatic reports can be generated,” says Richtermeyer. “But if customers are delinquent, you don’t have to wait for a receivables report. It can be set up as an automatic alert.” A lot of innovative small business tools exist. Taking advantage of those tools is key. Many small business owners and entrepreneurs do not implement the software fully or take advantage of all of the tools. According to Richtermeyer, most small business owners only use 10 percent of the software’s capabilities.

Make Technology Work Together
Speaking of tools, let’s say you have a great relationship with your bank. You can set up a system so that you receive account alerts via text message or email. Moreover, you can utilize your bank’s technology features to set up unusual spending or fraud alerts. You can do the same for credit card alerts; all you need to do is set up the parameters. “Any way that you can integrate your accounting system with credit card reconciliation can be helpful too,” says Richtermeyer. “Lots of tools are at your disposal, but are not integrated. Small business owners can only keep track of a few things at once. If you can appropriately integrate a way to be alerted to problems, it makes it easier to manage.”

Small business owners can also manage supplier problems; set up alerts to monitor the ordering of goods or any shipment delays. If you have two to three key suppliers, ask how your suppliers are using technology in their internal control environment and then you can maximize the business relationship if there is a way to integrate the information flow between supplier and customer. “Link systems together, if you do things routinely,” says Richtermeyer. “Automate your reorders, so both of you don’t need to think about it anymore.”

Secure Your Data
The same is true with securing your customer and financial data. It goes without saying that you want to have a continuous backup system. “Be sure to purchase a service that will back up new information and allow access via the Internet if something happens and the system crashes,” says Richtermeyer.

Technology can noly only help you reduce risks but make you a higher performer. Just be sure to have a plan in place that accounts for how information flows through your business, integrate your systems and reinformces internal controls.

SooJi Min is a freelance writer and nonprofit executive based in Ann Arbor, MI. She has written on small business topics for Crain’s, Imagination Publishing and The University of Chicago Booth School of Business.

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