Small practices and businesses are more vulnerable to fraud and have more to lose than their corporate cousins, but a few inexpensive changes can do much to prevent workplace fraud.
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Robert Kardell, a fraud prevention lecturer, forensic accountant and former special agent with the FBI, tells small firm owners to consider this: The median loss suffered by organizations with fewer than 100 employees was $190,000 per scheme, which is higher than the median loss in even the largest companies, according to the Association of Certified Fraud Examiners (ACFE). Kardell says small businesses suffer 1,000 times the loss per employee than large companies.
Kardell, who is a managing consultant with BKD, LLP Forensics & Dispute Consulting in Omaha, Neb., says small firms can implement three inexpensive and effective fraud prevention techniques.
It’s important for firm management to send the message that fraud prevention covers everyone at the company, from top to bottom. “Let them see that you’re all in the same boat, that you’re all in it together.” If employees are the only ones being reviewed, management runs the risk of inadvertently creating more fraud because employees begin to resent the company.
Small practices and firms can also examine the internal control policies they already have in place. Oftentimes, they look good on paper, but don’t work well in reality, Kardell says. For example, one company required two signatures on checks. The problem was that signer No. 1 had a master key that unlocked signer No. 2’s desk, where he kept his signature stamp.
Separation of duties can be a challenge in small businesses too. While the policy may state that the same person who makes bank deposits should not be the same one reconciling the bank account, the rule can go out the window in case of extended absences, such as a maternity leave.
Kardell says some small business owners are reluctant to implement fraud prevention techniques if they haven’t experienced problems in the past. “All the statistics show that fraud most likely is going to happen at some point,” he says. An ACFE study estimates that companies lose 5 percent of their annual gross revenues to fraud. That’s why Kardell recommends spending 2 or 3 percent of a company’s gross revenues on fraud prevention.
Fraud can’t be stopped completely. “It’s always going to happen, but the best that you can do is come up with a good plan to deal with it when it happens, have some good fraud training and try to prevent it in the first place,” Kardell says.