5 Ways Small Businesses Can Protect Themselves From Fraud
Business Solutions With small businesses at higher risk of fraud damaging them than their larger cousins, it’s only natural that they want to fortify themselves.
Fraud affects organizations of all sizes, but it can prove especially devastating to small businesses. According to the Association of Certified Fraud Examiner’s 2018 Report to the Nations, small businesses lost almost twice as much per fraud scheme in comparison to organizations with more than 100 employees. Small businesses typically have fewer resources to prevent, and recover from, fraud. The cultural structure of small businesses also tends to have a more potent atmosphere of trust, which can lead to fraudsters taking advantage. Here are five ways small businesses can protect themselves from fraud:
1. Be proactive
Adopt a code of ethics for management and employees. Evaluate your internal controls for effectiveness and identify areas of the business that are vulnerable to fraud. Make it clear to employees that fraud is something you take seriously.
2. Set up a fraud hotline
Regardless of the size of the organization, fraud is most likely to be detected by a tip. Providing an anonymous reporting system for your employees, contractors and clients will help uncover more fraud.
3. Separate duties
Small businesses often run lean; employees can be expected to fulfill multiple roles to keep the organization running. However, when the same employee is in charge of writing checks and approving them, it creates an opportunity for fraud. Out of fraud cases reported in small businesses, 22 percent of the schemes involved check and payment tampering — that’s a much larger amount than the 8 percent that organizations with more than 100 employees reported. Ensuring that duties are separated and approved by multiple people is important in removing the opportunity for fraud.
4. Provide fraud training for management and employees
According to the Report to the Nations, only a little more than 20 percent of small businesses had fraud training for their employees. Education is a pivotal part of fraud prevention. If employees and managers don’t know how to spot signs of fraud, how can they report it? Ensure that everyone in your organization is aware of what fraud looks like and how to report it.
5. Increase the perception of detection
Communicate regularly to staff about anti-fraud policies, ways to report suspicions of misconduct and the potential consequences (including termination and prosecution) of fraudulent behavior. Even if you are unable to implement controls, such as external or internal audits on a regular basis, performing them occasionally can go a long way to show employees that if they commit fraud, they will be discovered.
While fraud prevention is not “one-size-fits-all” for organizations, small businesses can make use of the above tips to decrease their risk for fraud. Find free fraud training and awareness resources at fraudweek.com.