While business fraud is prevalent amongst companies of all sizes, larger organizations are less susceptible to fraud compared to small and mid-sized businesses. On top of that, small and mid-sized businesses have a much tougher time recovering from fraud compared to large organizations. In fact, the ACFE (Association of Certified Fraud Examiners) conducted a recent Global Fraud Study highlighting the fact that businesses lose an average of 5 percent of income annually due to fraud.
With approximately $3.7 trillion in fraud deficits, the threat of business fraud is something that business owners cannot ignore. Besides the lost income, there are a number of unforeseen costs linked to business fraud. Some of the most common include:
- Poor employee morale
- Reduced productivity
- Tainted brand reputation
These issues both directly and indirectly impact an organization’s bottom line. As such, proactive measures must be taken to combat business fraud, particularly for small businesses. The most typical types of business fraud include:
- Misuse of assets
- Financial statement fraud
The ACFE cites that the bulk of fraudulent activity comes from misappropriation of assets and theft. Unfortunately, this type of theft is most often committed by employees. As an employer, this can be a tough pill to swallow and an even tougher issue to detect. With this in mind, it is absolutely critical for business owners to have a fraud prevention strategy in place.
Fraud Prevention Strategies for Small Business Owners
Unlike large organizations where employees are typically accountable for a smaller number of day-to-day responsibilities, small and mid-sized companies often have employees wearing a number of hats. When this happens, an individual may have their hands in a range of places that may give them an opportunity to commit fraud.
When an employee performs a number of different tasks in an organization the door opens to a variety of fraudulent activities. Plus, when the staff is small the relationships within the office tend to be closer, which also make oversight more lax. Finally, small and mid-sized companies are less likely to employee a person who is an expert on financial matters. This can lead to challenges in detecting fraud.
Without further ado, the following are some of the most critical strategies for fraud prevention in small and mid-sized businesses:
- Separate accounting responsibilities by having at least two people handling bookkeeping functions
- Keep a strict handle on internal controls, ensuring that access is restricted to things like financial account data, check writing, payroll functions, and the like
- Conduct a thorough background check before going into business with a partner, including knowing their home address
- Maintain a hiring routine that aims to vet potential employees carefully, placing an emphasis on honesty
- Get into a routine of regularly auditing the books, include random, non-scheduled audits
- Conduct employee prevention fraud training
- Frequently look through business banking accounts
- Be on the lookout for business credit card fraud, keep personal and business accounts separate
- Look into every suspicious report or potentially fraudulent activity
- Hire an outside expert to set up a strategic, customized fraud prevention program for your company
Fraud prevention is imperative for any size business, but small and mid-sized business owners must be particularly vigilant. Consulting with an outside firm can be the difference between avoiding disaster and succumbing to it.
At Ellrich, Neal, Smith & Stohlman, P.A., our staff includes five Certified Fraud Examiners who are involved in fraud detection and prevention engagements. Such engagements include evaluation of an organization’s internal controls, identification and measurement of frauds, and implementation of procedures that will reduce the risk of falling victim to fraud schemes in the future. Past fraud engagements have resulted in successful recoveries in both civil and criminal actions.
Contact our Palm Beach Gardens or Miami office today to learn more about your options.