Private companies are prime targets for fraud. According to the Association of Fraud Examiners in 2010, 42 percent of fraud cases happened in privately held companies, with the majority being in companies with fewer than 100 employees. What's more, the average fraud continued for a year and a half before it was even detected with the median loss in all these fraud cases a devastating $231,000 per case.

Here are the three most important financial control concepts to protect yourself and your company from fraud, theft, and embezzlement.

Financial Control Concept #1: Always have two unrelated parties involved in any money flow in or out of your business.

The idea behind this financial control concept is pairing two unrelated team members on a given financial job so they can be a check and balance for each other. This does two things. First, it reduces temptation for fraud as both parties know that the other will likely see any bad behavior and report it immediately. Second, it makes it so two people would both have to collude and keep the secret before any serious theft could happen in those areas.

This means one person opens the mail, lists all checks received on a spreadsheet, and preps these checks for depositing, with a second, unrelated person who double-checks the math and reviews the deposit amounts before it goes to the bank.

This also means one person who sets up the ACH payments for the payables period, and another who goes in and approves the payments to go out.

Financial Control Concept #2: Create permanent "footprints" in your financial system that cannot be erased so that you always have a clear audit trail.

What this financial control concept does is make it much more difficult for a person to cover up theft, whether by making it clear who had which checks or invoices, or by keeping a permanent record of who altered what accounting records. By making these things obvious and traceable back to the offending party, you lower the temptation of bad behavior and increase the odds of it being spotted faster.

Footprints can also mean keeping checks under lock and key, with a check log clearly showing who is in control of and responsible for which check series.

This also includes numbering your invoices and keeping a separate invoice log of who has which invoice number series.

And make sure that your financial software is set up with individual log-ins for any team member who needs to access that information, and that the software permanently tracks any changes to the accounting and who made those changes. (This is an option you can turn on in most accounting programs like QuickBooks and Peachtree.)

Also, require your financial staff to have private, robust passwords that they change at least twice a year.

Financial Control Concept #3: Show vigilance and actively question things that strike you as strange or out of the ordinary.

As the business owner, it is your responsibility to actively and regularly review the financial records of your business. Sure, you will have financial staff who do the heavy lifting, but you still need to pay close attention too.

Spot-check reports and highlight any line item or general question you might have. Follow up with your staff to get answers. If the answers don't satisfy you, dig. Listen to that still, small voice inside that sounds the alarm.

At the very least you'll keep your financial team on its toes and at least thinking that you are watching closely. Most business owners know roughly what the numbers should look like, and what expenses and sales figures makes sense. If you see something that is out of the ordinary, question it.

By following these 3 simple financial control concepts you'll radically reduce the temptation, access, and ability for someone on your staff to do something harmful.

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