If you operate your business in multiple locations (as with retail or restaurant chains), you face some extraordinary fraud-prevention challenges. After all, you can’t be everywhere at once. And the more locations you operate, the harder they are to monitor. Without the appropriate checks and balances in place, fraud losses in one store could threaten the health of your entire company. If you don’t already have one, consider implementing a robust antifraud program.

A comprehensive strategy

Whether you operate multiple locations as an independent owner or franchisee, fraud is an ever present risk. Depending on the products and services your business offers, employee, credit, returns and gift card fraud are all schemes your business potentially faces. Mitigating these risks requires a comprehensive strategy that doesn’t rely exclusively on individuals to do the right thing when faced with temptation.

For example, to combat employee fraud, require all serious job candidates to undergo background checks to help uncover any previous misconduct. Background checks also deter potential fraudsters by signaling that your business is committed to ethical operations.

Then, mandate that new employees receive fraud prevention training. Your program should include an overview of the controls you have in place — for example, procedures for handling cash and protecting customers’ credit card information — and the critical role employees play in preventing financial losses. Also provide regular antifraud refreshers to existing workers. This is particularly important because criminal schemes evolve quickly, as does the technology your employees may use to fight fraud.

Segregation of duties

One of the most important antifraud principles for any company is segregation (or separation) of duties — preventing employees from controlling more than one step of a business or accounting process. Here’s why: Employees who have access to your company’s books, incoming mail and bank account may be able to commit all kinds of fraud schemes and prevent their discovery. So you might, for instance, want to outsource payables and receivables to a third-party accounting service, receive mail for all locations at your office, and require individual store managers to deposit daily takings according to strict procedures.

Periodic job rotation, mandatory vacation policies and surprise audits also make it harder for crooked employees to steal and avoid detection. Fraud experts have consistently found that making an anonymous fraud tipline available to workers, vendors and customers alike slashes fraud risk. So be sure to offer a hotline and visibly post the number at all of your stores.

What’s more, depending on the size of your business and number of locations, you may want to engage a CPA or fraud examiner to conduct a fraud risk assessment. Such assessments generally document existing internal and external fraud threats, their probability of occurring given current controls, and the controls likely required to mitigate risks. It’s possible that some of your locations are better protected than others, which would allow you to focus on the stores harboring more serious fraud threats.

Leveraging technology

New technologies can also help you mitigate fraud risk in multiple locations by monitoring point-of-sale transactions and conducting store surveillance remotely. Artificial intelligence (AI) is now being used to identify employees who process excessive returns or refunds and flag excessive inventory turnover or higher-than-expected costs relative to sales. Such red flags don’t prove fraud, but they provide a starting point for investigation.

(This is Blog Post #1543)