Fraud Concerns for Small Businesses

by Karen Stern

While organizations of all sizes and in all industries are at risk of falling victim to fraud schemes, these can be particularly harmful for small businesses. Defined as crimes committed against an organization by its officers, directors or employees, occupational fraud can be particularly damaging for small businesses because of the lack of resources to prevent and recover from it.
According to the 2018 Report to the Nations released by the Association of Certified Fraud Examiners (ACFE), small organizations (identified in the study as those with fewer than 100 employees) experienced the greatest percentage of fraud cases and suffered the largest median loss due to fraud (at approximately $200,000).

Larger organizations often have more money and other resources to devote to anti-fraud programs. Small businesses not only have fewer resources but also often require a greater level of trust in their employees because of a lower ability to implement comprehensive anti-fraud controls.

Here are some other key findings from the report with implications for small businesses:
• Small businesses often face different types of fraud risks than larger organizations. The most common types of fraud committed against small businesses include billing schemes, payroll schemes, check and payment tampering, skimming, and cash larceny.
• 29 percent of frauds committed against small businesses in the study were perpetrated by an owner or executive of the business, compared with 16 percent at larger organizations.
• Nearly half of all frauds committed against small businesses were caused by a lack of internal controls.
Businesses of all types and sizes are vulnerable to fraud, and this year’s ACFE report is an important reminder to proactively prevent fraud within your organization.

Karen Stern, CPA, (kstern@bswllc.com), partner in charge, Brown Smith Wallace Entrepreneurial Services Group, provides tax and accounting services for companies ranging from start-ups to $20 million in revenue.