Fighting Small Business Fraud

It’s not surprising that fraud in the workplace increased during the economic crisis and recession. The median loss tied to occupational fraud is $160,000, according to the Association of Certified Fraud Examiners’ (ACFE) 2010 report, so the issue is something about which many companies are rightfully concerned. Small businesses are especially vulnerable, the ACFE says.

Fraud typically occurs when someone has an incentive, such as financial pressure, and opportunity, according to Michele Edwards, who heads the fraud prevention and detection practice of PRGX, a Chicago-based audit, analytics and advisory services firm. The recession certainly meant many people faced new financial pressures.

Previous studies have shown that it typically takes two years from the time fraud begins to the time someone identifies it might be going on, Edwards said. As a result, while some companies have already discovered fraud born of the recession, many more are likely to uncover problems in upcoming years. “I think there’s more fraud going on than anyone knows about,” she said.

 

 

Fraud can pad your selling, general and administrative expenses or inflate your cost of sales. Here

are five ways to fight fraud in your business:

 

1. Confirm who’s doing fraud control. “Do a quick and dirty assessment of fraud control,” Edwards says. “One of the questions I always ask [clients] is, ‘What are your responsibilities for fraud and misconduct management?’” It can be a working group, but someone needs to quickly identify areas that may need action.

 

2. Screen and monitor those who touch or track money. Background checks are a must for accounting workers, and division of labor is also a good idea, especially for things like who gets the mail and who deposits checks.

 

3. Conduct basic fraud-awareness training. It can be as simple as getting employees together and explaining that fraud can occur in any organization and describing what they need to know and how

they can speak up if they see something unusual. “It’s Awareness 101, and it lets employees know that you’re watching,” Edwards says.

 

4. Periodically remind employees to be vigilant. Edwards says how you do that depends on your company’s culture. But it could be as simple as e-mailing the staff a news article about a recent case of occupational fraud.