Data show that smaller businesses (less than 100 employees) are more vulnerable to fraud than larger ones (more than 100 employees).聽 According to a survey by the Association of Certified Fraud Examiners (ACFE) in their 2018 Report to the Nations, small businesses globally had a annual median loss to fraud of $200,000 while larger ones had a median loss of only $104,000. A small business may be more susceptible to fraud due to a lack of internal anti-fraud measures and controls鈥�42% of frauds were caused by lack of controls vs. 25% in larger organizations. In addition, in smaller businesses 29% of the fraud was perpetrated by an owner or executive in comparison to 16% in larger business.[1]聽 The main cause is likely聽due to smaller businesses having a single individual in charge of many areas of the organization and often no one oversees that person.
The main kinds of fraud schemes seen in small businesses are:[2]
- Corruption
- Billing Scheme
- Check Tampering
- Expense Reimbursements
- Skimming
It is not just a lack of controls that lead to fraud in small businesses. Often, owners of these businesses often put too much trust in employees.
According to the ACFE report, 89% of such frauds involve first-time offenders. 聽When an employee experiences one or more factors of the聽fraud triangle鈥攑ressure, opportunity, and rationalization鈥攖he likelihood of fraud against the organization increases.
It is estimated that 60% of all fraud losses to small businesses are not recovered. Therefore, having a control system combined with trained employees can be the difference between success and ruin for a small business owner who may not be able to recover from a large fraud loss. Additionally, it may be best to hire experts to help draft a fraud deterrence聽plan if the smaller firm does not have its own resources.
The ACFE advises all organizations regardless of size, to combat fraud with preventative measures. The following are guidelines:
- Take a proactive step鈥攃reate and maintain strong internal controls that help create a system of checks and balances.
- Create a hotline that employees can call to report potential violations or concerns.
- Train employees in fraud prevention.
- Have regular internal audits to find any violations and identify weaknesses.
[1] Association of Certified Fraud Examiners. (2018).聽Report to the Nations: 2018 Global Study on Occupational Fraud and Abuse聽(pp.20-23). Retrieved on October 30, 2018 from聽
[2] Ibid, 23.