Small Business – Fraud Environment & Risks

Randy Feld

Increased financial pressures during the current economic downturn have led to an increase in fraudulent business behavior.  It seems like you can’t read the daily business news and not see some article regarding embezzlement.  Business fraud is occurring across all sizes of business and industries.

Organizations must be vigilant during these tough economic times by ensuring that proper fraud prevention policies are in place.  Small or emerging businesses are much more vulnerable to employee theft and much less able to absorb the related losses than large corporations, but the risk exists for all businesses.

The owners/management of an organization must have their eyes wide open and not be gullible.  Recognize that even the “nicest” employees may be subject to temptations and failure of character.  Studies have shown that in most cases of embezzlement, it was an employee that the owners would not have suspected.  Therefore, it is extremely important for organizations to have a strong fraud management program or policies.  This is more so the case if your organization is so small that one individual handles almost all aspects of the accounting functions and the segregation of duties is not economically practical.  These do not have to be overly complex or expensive to implement, but rather proper oversight of key processes – “Internal Control”.  The survival of your business may depend on it.


Where should we/I start?

For most small businesses, cash is “King” and an area of high risk.  As such, it is vital to have proper controls or oversight surrounding all aspects of cash – both disbursement and receipt.  I recommend that for starters, focus on the bank account reconciliations and bank statements.  Sound controls in this area include timely reconciliation of all bank accounts and the proper review and approval of the reconciliations.  If possible, someone independent of the actual cash transactions should reconcile the bank accounts.  Also, the bank’s statements should be received by an owner/management and reviewed prior to reconciliation.  Ask questions if you are not sure about something.

If you currently have any questions or concerns regarding your organization’s fraud management policies or internal control, we recommend that you give us a call.  It is in your best interest to take a proactive approach to ensure your organization is doing what it can to protect itself.


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