Small businesses in all industries, including the promotional products industry, are littered with tales of trusted CFOs, business managers and even family members fraudulently bilking business owners out of substantial money. Not only does this affect a business owner’s profits, it can tarnish their reputation and have a lasting impact on their livelihood. Small businesses (organizations with fewer than 100 employees) are the most common victims of fraud. In 2016, the Association of Certified Fraud Examiners reported that 30 percent of all fraud cases involved small businesses.

Fortunately, you can take action now to help detect and prevent fraud within your business. One of the most important first steps every business owner should take is to implement effective internal controls within their organization. Internal controls are processes and procedures put in place to control risk by safeguarding assets, ensuring operational compliance and confirming accurate financial reporting to help you achieve your business objectives.

There are five key factors for establishing effective internal controls for your business:

1 Segregation of duties
2 Policies and procedures
3 Documentation
4 Oversight and review
5 User access and rights

Segregation Of Duties

When we go to the movies, there’s a reason we pay one person for our ticket and a separate person takes our ticket. This is one of the most common examples of segregation of duties. This separates the access to the asset (cash or payment) and access to the record (the ticket). In large organizations, segregation of duties is easier because there are more employees to handle each aspect of the transaction or process. But, for a small business with fewer employees, it can be challenging, which is why segregation of duties is critical. 

Effective segregation of duties ensures that different people are responsible for authorizing and recording transactions, maintaining custody of related assets and reconciling account balances. Providing clear job descriptions and role responsibility documentation to team members will define the segregation of duties needed to protect your business. Although separation of duties on a full-time basis may not be practical for your business, consider job sharing. In job sharing, two or more employees are assigned to one area of the business on alternate weeks. This creates a “checks and balances” situation where the use of the same established processes can help monitor potential fraud.

Policies And Procedures

Many small-business owners think their business processes are simple and easy to understand. Remember, if you have been living and breathing this business for many years and you have a thorough understanding of the industry, your policies and procedures are probably uncomplicated to you. But as your business grows, so does your team. You may begin to hire new employees, sales professionals, customer service reps, etc., and those individuals might not have the knowledge and experience you have. Documenting effective policies and procedures can help you align your business objectives and establish best business practices for your team.

Some common areas  in which to define and document policies and processes include:

  • Sales and accounts receivable
  • Cash management
  • Purchasing and accounts payable
  • Payroll and human resources
  • Financial statement reporting

Having detailed, step-by-step tasks documented for each of these areas clearly outlines the expectations and operational goals of your business. Your team can easily follow your processes, providing consistency within your organization and allowing tasks to be delegated to other team members. Documented policies and procedures will make it easier to train new employees and provide support if a key team member leaves your organization.


Remember the movie ticket? There must be a ticket. Preparing and maintaining proper transactional documentation is a key component in developing an effective internal control process for your business. If proper documentation is not in place, it can be extremely difficult to determine how transactions were initiated, processed and completed in order to ensure proper procedures and controls are used. Not only will proper documentation assist in preventing and detecting fraud, it will allow you and your team to more effectively research and respond to questions and concerns from customers, suppliers, sales reps or accountants.

Oversight And Review

It is not what you expect, it is what you inspect. You are probably extremely busy growing your sales by meeting with current and potential customers, hiring sales professionals and buying out your competition. These activities take a lot of your time, but you also need to devote time to inspect the policies and procedures, documentation and segregation of duties you have put into place. This shows your team that you are committed and serious about implementing and reviewing these internal controls and sets the tone for your organization. This constant oversight and review is critical for a system of effective internal controls and an important aspect of fraud prevention.

To help you identify potential fraud, review key reports and metrics, sales activities, purchase orders, bank statements, expense reports, payroll data, deposit records, variance reports and other data on a regular basis.

User Access Rights For Information Systems

If you read the news, you hear about it all the time. Big companies get their systems hacked and they lose data—or, more frightening, others gain access to that data. Your business is probably similar in the way that you maintain most of your company’s valuable information electronically. Your team members should have appropriate access to the information they need to conduct their responsibilities—and no more. As their responsibilities increase, so should their access rights to additional information. The access rights of your team members should be reviewed periodically to ensure they are appropriate for their current position. Business owners often provide too much access too soon to team members, and it can expose their business to additional risks and potential fraud.

Proper internal controls are essential to all businesses in any industry. Your business is no different. This article touches on a few key areas to focus on in establishing effective internal controls, but don’t stop here. Speak with other business owners, managers and accounting firms about their internal controls. Many accounting firms have experienced risk advisors who can establish and review your internal controls and provide further guidance. Implementing and reviewing these internal controls is extremely important for your business to effectively prevent or detect fraud and reduce financial risk.

Greg Muzzillo founded distributor Proforma in 1978. Within five years he grew the company to several million in sales, and by the mid-1980s Proforma had been recognized by Inc. magazine as an Inc. 500 fastest-growing company. In the late 1980s Proforma introduced its membership program to enable distributors to retain their business ownership and independence. Today, Proforma has more than 700 members with $500 million in sales.