In our Falling in Love with Finance Series, we’ve discussed tools and strategies for how owners and managers of SMB’s can become more comfortable with the financial operations of their businesses. There are a number of reasons to understand and actively manage the finances of your business, not the least of which is to prevent fraud. While many small business owners are aware that fraud can ruin their business they often don’t believe that their business is susceptible to fraudulent activity since they know and trust their employees. Unfortunately, the facts simply don’t support this and small businesses need to establish processes to ensure that honest people stay honest.
A few facts that are worth looking at can be found in the Association of Certified Fraud Examiners Executive Summary of their 2016 Global Fraud Study. It found the following issues specifically related to businesses with less than 100 employees:
- The median loss suffered by small organizations (those with fewer than 100 employees) was the same as that incurred by the largest organizations (those with more than 10,000 employees). However, this type of loss is likely to have a much greater impact on smaller organizations.
- Organizations of different sizes tend to have different fraud risks. Corruption was more prevalent in larger organizations, while check tampering, skimming, payroll, and cash larceny schemes were twice as common in small organizations as in larger organizations
- Small organizations had a significantly lower implementation rate of anti-fraud controls than large organizations. This gap in fraud prevention and detection coverage leaves small organizations extremely susceptible to frauds that can cause significant damage to their limited resources.
So how do you start to implement policies and procedures that will help prevent fraud in your company? The best place to start is with your accountant. CPA’s are not only trained to perform audits, reviews, and taxes, they can also provide you with best practices to prevent fraud. Your CPA will provide you with several suggestions based on the type of business you own, which will help you ensure that you do not become the subject of a fraudulent act.