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What Makes a Business Most at Risk for Fraud?

Oct 18th 2018
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There are specific characteristics that contribute to the level of fraud risk that a business client may be exposed to. 

For small business clients, the biggest challenge is the size of the organization as resources are much lower, causing them to have less internal controls. In addition, the smaller the business the more reliance on limited staff. Moreover, the level of trust that the owner has in the organization can lead to more significant damages in the event of a fraudulent act. 

It is common for a small business owner to believe that they are not at risk of fraud stating things like: 

  • "I am such a small company and plus I have had the same employees forever." 
  • “Sally the bookkeeper is NOT going to steal from me, she babysat my kids!”
  • “That conversation doesn’t go any further, right?”

This line of thinking has caused over $7 billion dollars to be stolen by employees from businesses. If that statistic doesn’t scare them, 96 percent of those who committed the crime NEVER committed a crime in the past. Maybe that will help you convince clients not to be so ignorant and allowing them to be exposed to this risk.

According to the **2018 Report to the Nations, the primary categories for types of businesses victimized are:

  • private companies
  • public companies
  • government, non-profit organizations

Private companies comprise of 42 percent of the occupational fraud committed in 2017. The average loss for those companies was $200,000!  Out of those private companies, 28 percent of them had less than 100 employees which translates to small business owners! 

Again, the size of the company and the significant lack of resources to implement anti-fraud controls leaves them at a higher level of vulnerability. As accounting professionals, it is our duty to care enough to have a conversation with our small business clients in order to educate them about the potential that they may be in danger of this crime. 

What We Can Do

I am currently working on a Small Business Fraud Prevention Plan that I will offer to my clients starting in January of 2019.  My plan is to have every one of my clients implement three simple internal controls that will significantly minimize their exposure to a potential fraud.

I recommend that you work with your small business clients to implement even just a few technologies to minimize the risk of a crime. Start with changing your pitch to clients about applications as efficiency tools and shift to the mindset of protecting the client from a potentially devastating and business destruction plan. 

**2018 Report to the Nations, Association of Certified Fraud Examiners

Next week’s topic: Why Do They Do it?

Replies (2)

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By RituGupta
Oct 24th 2018 22:21 EDT

When we hear of fraud in businesses, usually the first thing that comes to mind is a financial company. However, that is not necessarily the only case. There are in fact many other sectors that suffer from fraud cases as well. As long as the culprit stands to win at the end of the chain, they would still commit fraud. Some cases involve gaining access to data, given priority in promotions, and many other instances.

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By NathanDavidson
Oct 30th 2018 00:01 EDT

What I've learnt from running my own business for a number of years, is that you really cannot trust anybody. Not even your relatives. Honestly speaking, as much as you think that they are trustworthy, circumstances change and you can never place your bets that they will not sell you out if a better price comes along. Always best to have some good legal clauses stated in contracts and agreements to make sure that your business is not at risk for anything at all, let alone fraud! It might seem extreme, but if you can afford to put those measures in place, then you're going to be better for it!

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