Fraud-Proof Your Small Business

Natalia Autenrieth In her professional lives across the United States, Natalia Autenrieth, CPA has audited Fortune 500 clients as part of a Big 4 team, built an accounting department as a controller of a large hospital, and served as a CPA consultant to municipalities. Today, Natalia coaches in the financial industry and writes about business finance, financial technology, and personal money management. Her ghost-written articles have appeared in thought leadership and expert blogs, as well as Kiplinger and Accounting Today. Read more about Natalia and her practice at

Fraud-Proof Your Small Business

As long as there are financial pressures, opportunities to profit from, and ability to rationalize nefarious actions, there will be fraud. Small business owners tend to view their teams as close-knit, family-like units – but that attitude of camaraderie isn’t an effective shield from theft. The 2018 Report to the Nations on Occupational Fraud and Abuse, recently released by the Association of Certified Fraud Examiners, indicated that small businesses face a unique set of challenges in this arena.

  • Only 29 percent of instances of fraud at small businesses were identified through a tip (compare with 44 percent for large businesses of 100 or more employees).
  • As many as 42 percent of small business fraud cases were due to a lack of internal control (compare with 25 percent for large businesses).
  • Certain types of fraud, such as check tampering or payment tampering, are almost three times more likely to happen in a small business (8 percent in a large business versus 22 percent in a small business).

Small business owners who want to allocate their resources for optimal anti-fraud effectiveness should consider these tips.

#1: Protect Against Billing Fraud

The 2018 report from the Association of Certified Fraud Examiners ranked billing fraud at the top of fraud scheme lists for small businesses. For example, a trusted employee with access to the company’s billing system can set up a fake supplier profile that can be used to bill the company for fictitious goods or services. Business owners should establish an approval process that requires their signature on all invoices (or invoices over a certain dollar amount). They should also review the approved vendor list regularly (annually or even quarterly).

#2: Watch That Register

Register disbursement fraud is another common avenue that an employee can use to steal money from a small business employer. Someone might pocket the cash (or a check) without ringing up the sale or process a fake refund of a legitimate sale. The best way to combat this possibility is to install video surveillance to monitor the way your employees are handling payment receipt.

#3: Inventory Alert

If your inventory is small and valuable, outright theft is always a possibility. The best way to prevent and detect this scheme is by conducting inventory counts to reconcile the inventory on the books to what’s physically present on the shelves. Don’t ignore small differences, as they can sometimes build up over time as the thief gets more confident.

#4: Add a Hotline

The close-knit nature of a small business can sometimes serve as a deterrent for a conscientious employee to report a co-worker or a manager. Many small businesses view an anonymous tip hotline as an unnecessary expense, but sometimes this is the only method to encourage someone to speak up without fear of immediate retribution.

#5: Don’t Just Trust – Verify!

Data analysis and surprise audits are some of the most effective methods of fraud detection and prevention. Unfortunately, small business often struggle to allocate time and resources towards these important tasks. Remember that by going the extra mile to institute these controls, you aren’t just protecting your bottom line – but also your customers, vendors, and employees who can all suffer from one unscrupulous act.

Fraud-Proof Your Small Business!

Fraud protection isn’t a one-time investment of your time, money, and energy. For best result, small business owners should make fraud awareness and control a normal part of their daily workflows. While it’s difficult to picture trusted employees taking advantage of you company, financial pressures such as an illness in the family, addiction, or other personal issues can push good people to do dishonest things. A transparent and consistently enforced system of controls, such as requiring owner approval for vendor or payroll payment, installing video surveillance next to the cash register and in the stock room, and periodic surprise audits, can deter attempts at fraud and help you catch one before it’s too late.

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