Is Your Business Fraud-Resistant?
Every business owner should be vigilant when it comes to fraud. Based on the findings of a 2018 survey (1) of Fraud Examiners, an average business that experienced fraud saw a 5% loss in revenue, with the median loss totaling $130,000.
If you’re a small business owner, fraud can happen even if you have a tight and trusted staff. According to the same report, companies that had fewer than 100 employees represented 28% of the fraud cases and reported a median loss of $200,000 – the same loss as large organizations.
There was good news - businesses with monitoring and other controls experienced fewer losses from fraud than those that had no controls. Read on to discover the common causes of organizational fraud and the steps you can take to protect your business.
Where to Look for Fraud
Small businesses can be especially susceptible to organizational fraud. With fewer workers, only one or a few key individuals who likely have many other responsibilities may manage the finances. If there is little oversight, it’s easier for deceitful individuals to commit fraud.
Another contributing factor is an absence of formal processes or audit trails, which makes adjusting books and diverting cash simpler and easy to hide.
Fraud is often outright theft – usually by employees – and can include embezzlement, redirecting payroll by paying ghost employees or vendors, illegal kickbacks and asset misuse such as data and intellectual property theft. Not surprisingly, most fraud occurs within the accounting department.
How to Protect Your Business from Fraud
Theft can take a big chunk out of revenue, stifling a business’ ability to operate, and no small business can afford to lose $200,000. It’s vital that you detect fraud and stop it before it adversely affects your business. Here’s five steps that can help you detect fraud early or stop it altogether:
1. Divide accounting functions among several staff members.
2. Add oversight procedures to all your key financial functions. The 2018 survey found that a business with data oversight and analysis lost 50% less than businesses with no oversight.
3. Insure your business against employee theft. If you have a contractor or outside firm handling the accounting, see if your insurer has a rider available to cover this situation.
4. Review the financial statements monthly and conduct an audit at least once a year.
5. Make sure staff are taking their vacations. Employees who are stealing from the company may not take time off for fear of getting caught.
In business, there are always risks. But you can significantly reduce the risk of fraud being aware and creating processes to protect your organization. You can reduce fraud risk even further by partnering with local financial partners that have your best interest in mind. Credit Union West is committed to helping you achieve your financial goals. Visit them at cuwest.org or stop by a local branch.
(1) Association of Certified Fraud Examiners; Report to the Nations on Occupational Fraud and Abuse, 2018, online: https://s3-us-west-2.amazonaws.com/acfepublic/2018-report-to-the-nations.pdf