FRAUD BASICS FOR SMALL BUSINESS

FRAUD BASICS FOR SMALL BUSINESS 2017-05-12T15:14:20+00:00

The statistics in this article are taken from the Association of Certified Fraud Examiners “2008 Report to the Nation on Occupational Fraud and Abuse”. 

Small business is particularly vulnerable to fraud.  This type of fraud is called “occupational fraud”.  It is a loss sustained by the business owner when an employee or employees steal. 

Small business is defined as less than 100 employees.   These businesses are stunningly “at risk”.  The average occupational fraud against small business in the ACFE study was $200,000.  Surprising, it appears that the ACFE found a greater frequency of frauds in small business and the average loss amount was greater than with “big” business. 

Why is there this problem?  Lack of internal controls!

Small business usually vests their trust in just a few “accounting/financial” personnel.  29% of all frauds studied by the ACFE were committed by these accounting personnel.

How is it done?  Small business fraud is usually accomplished by:

  1. Billing Schemes (28.7%)
  2. Skimming (20.8%)
  3. Cash Larceny (15.2%)
  4. Payroll (14%)
  5. Expense Reimbursement (15.5%)

How is it detected?

  1. Tips (41.7%)
  2. By Accident (20.0%)
  3. By External Audit (14.3%)

What should make you suspect? 

  1. Employees have noticeable lifestyle changes increases in wealth (new car, new house, new boat, fancy vacations).
  2. Employees appear to spend outside their means
  3. Employees seem to always have financial difficulties
  4. Employees lose concentration and proper work habits due to infidelity, addiction or legal problems

What are quick fixes to reduce the change of occupational fraud?

(These are not all inclusive… but give you the quickest improvement to your system)

 

  • Put a “whistleblower” policy in your employee manual.
  • Review your internal controls
    1. Establish a proper separation of duties
    2. Establish an internal review process (spot checks).

 

We are happy to provide a no cost consultation regarding your internal controls, just give us a call!

About the Author:

Kim Joseph Onisko is a Certified Public Accountant (CPA), licensed by the State of California.  Mr. Onisko is a Certified Forensic Accountant (Cr.FA) and a member of the Board of Directors of the American College of Forensic Examiners.  Mr. Onisko is also Certified in Financial Forensics (CFF) by the American Institute of Certified Public Accountants (AICPA).

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