Ten years ago the economy hit a recession and businesses across countless industries suffered. While the hurting economy was apparent to all, one of the more discrete and surprising consequences came in the form of increased business fraud across many industries. A number of explanations can be attributed to this increase in fraud. Most notably, when employees were fired they had the ability to attack the very internal controls they once oversaw. As a result, organizations unintentionally exposed themselves to great fraud risk by laying-off the employees who once worked to prevent such a thing from occurring.
The Association of Certified Fraud Examiners (ACFE) cites that the fusion of great economic pressure with a deficiency of internal controls created a recipe for disaster in the form of business fraud. In the last decade, local businesses and Fortune 500 companies alike have been susceptible to business fraud. However, it is important to note that small businesses are actually far more vulnerable to fall victim to fraud compared to large corporations. In fact, recent research revealed that 1 in 4 small businesses are affected by fraud each year.
Being a small business owner means wearing many different hats day in and day out. Unfortunately, fraud prevention typically takes a backseat to some of the more pressing tasks that come up on a daily basis. There are 3 major steps in the process of fighting fraud:
- Careful assessment of operations and internal controls
- Recognize certain conditions
- Systematically remove risks
The ACFE provides a set of guidelines for assessing fraud risk in the workplace and even recommends creating an in-house fraud investigative team or hiring a Certified Fraud Examiner (CFE) to create internal protocols that eliminate future fraud. Unfortunately, the fraud prevention process is continual. Businesses who are consistently monitoring and reviewing their fraud prevention procedures will be best suited to fight fraud long-term. Finally, whether conducted internally or performed by a CFE, fraud prevention protocols must be regularly evaluated and assessed. In doing so, the company will be suited to prevent fraud now and into the future.
It is important to remember that internal controls come in the form of two major classifications: preventative controls and detective controls. Designing both preventative and detective controls is paramount to creating a company culture that eliminates fraudulent activities. Taking the necessary initial steps to prevent business fraud may seem costly and cumbersome today, but doing so can end up saving your organization immeasurably tomorrow.