Don’t Get Careless On Fraud

July 20, 2021

Business fraud occurs everywhere. It happens in small businesses, large businesses, rural areas, metropolitan cities, startup businesses, established entities, for-profit businesses, or non-profit organizations. The perpetrator might be a Baby Boomer, GenX, or Milliennial. It doesn't matter. Dishonest and/or desperate employees have no preferences or age restrictions. 

Fraud Losses

Fraud losses might be small or large. The scheme might have been caught early on or it might have gone undetected for months or even years. The stories of misappropriations remain relatively the same except names, cities, organizations, and facts of the misdeeds change to fit the circumstance.

The fraud is usually discovered by accident or through tips and most frequently is a valued, long-term, and trusted employee. While a large company might be better able to sustain a sizeable fraud loss, a small business might not ever be able to recover from a devastating loss.

Be Aware

Business fraud has been around for a long time and will certainly continue. With the current economic situation that most businesses are in due to the long-lasting effects of the global pandemic, it is increasingly more important than ever to be vigilant about the occurrence of potential fraud in business...yes, even small businesses and SMEs. Many employees who have suffered negative consequences from the pandemic are now back at work with many having lingering financial problems that could...not necessarily will...but could be desperate enough to resort to some illegal act of business fraud.

To avoid being the victim of business fraud, there are several areas that a business should concentrate on:

• Understanding risks
• Being observant of employees
• Implementing necessary controls

Understanding Risks

While all businesses have similar risks present, some businesses have areas that are more prone for potential fraud. Businesses should review all areas, controls, and procedures to help in highlighting areas that have possible risks that could turn into fraudulent acts. A score chart or scoreboard can be used to determine areas with the highest probability of potential fraud occurring and where efforts should be concentrated to reduce dangers. 

An effective fraud assessment and deterrence program is a process of reviewing all functions in a business that contribute to an environment of possible business fraud. After potential risks are determined, the costs associated with reducing those risks should be weighed against the potential monetary loss if fraud does occur.

Be Observant of Employees

Being observant of employees does not mean micro managing their every action or intruding upon their personal lives. It does mean, however, that management should be observant of how they react to various situations at work (control measures, conforming to procedures, etc.) and known personal situations (financial troubles, family issues, health problems, etc.). These can be red flags or warning signs to employers that employees might have personal pressures in their lives that could possibly cause a normal, honest employee to have the temptation if an opportunity arose that they could consider engaging in some type of fraudulent act.

Implement Necessary Controls

Implementing necessary controls and then ensuring compliance with those procedures is an important element in stopping fraud in the first place. It is far better to stop fraud before it starts than to catch a perpetrator after a fraudulent act has occurred and try to obtain restitution for the amount lost. A business can be strengthened with proper controls and check and balance systems to make sure procedures are followed. 

Everything Ties Together

It is not just one thing that prevents fraud from occurring in a business. It is many different elements that all tie together. It is important for any business of any size in any industry to be vigilant regarding potential fraud within the business. Especially during times of financial hardship, businesses cannot become careless regarding fraud. It is far better to be over prepared than under prepared regarding potential business fraud.