Small business owners tend to put a low priority on internal controls and fraud prevention because they think the risk is low.
However, any organization that has customers, employees or vendors is at risk to fraudulent acts.
As a business grows the risk of fraud grows because there are more customers, employees and vendors.
Fraud can never be prevented completely but businesses can implement internal controls to deter and in some cases detect fraudulent acts.
Here are some suggestions to help prevent fraud:

• Develop formal policies and procedures including a Code of Ethics and a Code of Conduct.
  All employees should receive training on the policies and procedures.
  Employees should be made aware of the expectations and the consequences for failing to meet those expectations.
  Consequences should be severe and include the risks of job loss and criminal prosecution.
  
• A formal hiring process should be developed.
  New employees should be required to provide references and a formal background investigation should be performed.
  
• There should be a formal process to evaluate new vendors.
  All vendors should be required to submit a W-9 form.
  There should be a process to investigate new vendors.
  The investigation should include requiring references, requiring evidence of credentials and reviewing the vendor's history with the Better Business Bureau.
  
• There should be a formal process to evaluate new customers before any credit terms are given.
  
• Employees' duties should be segregated as much as possible.
  Typically, you do not want an employee to have authority to authorize a transaction, record a transaction or have custody of the assets involved.
  For example: A cashier that accepts payments from customers should not have the ability to record those payments to the customers' accounts.
  
• Computer systems should be restricted to authorized users.
  User names and passwords should be required to access critical systems such as payroll, accounts payable, accounts receivable and the general ledger.
  
• Assets should be safeguarded.
  Access to cash or blank check stock should be limited to authorized personnel.
  
• Bank accounts should be reconciled on a regular basis by someone independent of cash custodial responsibilities or transaction processing responsibilities.
  
• The adequacy of your internal controls should be reviewed and evaluated by an independent party at least annually.
  You should consider hiring an independent consultant, Certified Public Accountant or Certified Fraud Examiner for this review.
  Make sure to hire someone with a background in internal controls auditing or fraud examination.
  

There is no set of internal controls that will prevent fraud completely.
However, small business owners can reduce the risks of fraud by implementing the suggestions provided.