How Small Businesses Can Combat Fraud Risks

by Karen Stern

Small business employees are currently facing intense personal and professional pressures. Some employees have received reduced hours and pay, furloughs or layoffs, and many household incomes are down, adding new and unforeseen personal and professional pressures on employees. Such pressures are one of three components generally present for occupational fraud to occur, along with opportunity and rationalization. The presence of these factors may increase during periods of economic hardship, according to the Association of Certified Fraud Examiners (ACFE).

Although organizations of all sizes face the risk of fraud schemes, certain fraud risks are more likely to occur in small businesses. Billing and payroll fraud schemes occur at almost twice the rate, and check and payment tampering are four times more common, according to the ACFE’s 2020 Report to the Nations. According to the report, small businesses also experience the highest median revenue loss of $150,000.

Small businesses experience unique challenges in combatting occupational fraud, including limited resources, lack of fraud risk awareness and too much trust in employees. These challenges can be compounded during times of increased economic uncertainty.

Opportunities exist for small businesses to stay diligent in their fight against fraud, increase their protection and reduce fraud losses. Some measures require only a small investment of resources and could help improve the anti-fraud environment of a small business. These include:

- Adopting a code of conduct and an anti-fraud policy

- Asking managers to review the work of their subordinates

- Conducting targeted anti-fraud training for employees and managers

- Establishing a fraud-reporting process, such as a fraud hotline

Looking outside of your small business for objective, independent advice can further protect your business and stakeholders.

To discuss a fraud prevention and detection strategy for your business, contact Ron Steinkamp, Forensic Services Partner at Brown Smith Wallace, at rsteinkamp@bswllc.com or 314.983.1238.

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.