How Small Businesses Can Combat Fraud Risks
In the August 2020 issue of the Small Business Monthly “Financial Fitness” column, Ron Steinkamp, Forensic Services Partner, discusses findings from the ACFE's 2020 Report to the Nations, including ways small businesses can stay diligent in their fight against fraud.
Small business employees are facing intense personal and professional pressures right now. 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 to employees. Pressure is one of three components generally present for an occupational fraud to occur, the others being opportunity and rationalization. The presence of each of these factors may rise in 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 placing too much trust in employees. These challenges can be compounded during times of increased economic uncertainty.
There are opportunities for small businesses to stay diligent in their fight against fraud during this time, increase their protection and reduce fraud losses. Some measures only require a small investment of resources and could help improve the anti-fraud environment of a small business. These include:
- Adopt a code of conduct and an anti-fraud policy
- Have managers review the work of their subordinates
- Conduct targeted anti-fraud training for employees and managers
- Establish a fraud-reporting process, such as a fraud hotline
Looking outside of your small business for objective, independent advice can help further protect the business and its stakeholders.
To discuss a fraud prevention and detection strategy for your business, contact Ron Steinkamp, Forensic Services Partner, at email@example.com or 314.983.1238.