Is Your Small Business At Risk of Fraud?

$6.3 billion in total losses. That’s what the 2016 ACFE Report to the Nations on Occupational Fraud and Abuse found when studying occupational fraud. And who suffered the most? Small businesses.

Business Statistics You Need to Know

According to ACFE’s report:

• 2% of cases caused losses of $1 million or more.
• It was estimated the typical business lost 5% of revenue in a year as a result.
• $150,000 was the median loss for all cases in the study.
• More than 75% was committed by employees working in accounting, operations, sales, upper management, customer service, purchasing, and finance.
• 6% originated in accounting departments.

Businesses of various sizes experienced different types of fraud. Corruption is more common among large businesses with more than 10,000 employees whereas asset misappropriation embezzlement and financial statement fraud are more common among small businesses with fewer than 100 employees.

How to Protect Your Small Business from Fraud

Small businesses suffer the greatest impact from fraud and embezzlement. They have limited resources and often don’t have the anti-fraud systems in place that larger organizations do, which makes them more vulnerable. It’s also more common for small businesses to have a single person in charge of accounting rather than a team, which makes it easier for a fraudster to scheme longer.

Warning Signs

• Individuals who commit fraud are typically unorganized, behind on their work, for instance, accountants that don’t issue timely financial statements.
• Individuals who commit fraud often have a trustworthy friend or family-like relationship with owners.
• Individuals who commit fraud display behavioral signs such as living beyond means, having close relationships with vendors or customers, having excessive control issues, struggling financially, and dealing with a recent divorce or family problems.

Protection Methods

Quick detection is key in preventing significant damages. According to the report, businesses with anti-fraud systems in place were able to detect fraud 33-50% faster than those without, and their losses were 14-54% lower because of early detection.

A “red flag reporting” (or anonymous tip) system is the most common method for protecting your business. In ACFE’s study, hotlines were found to be the primary tip-off system (39.5%) followed by email (34.1%) and web-based or online forms (23.5%).

If your small business does not have anti-fraud control processes in place, you could be at risk.