Fraud

by. Ryne Shumaker

According to the Association of Certified Fraud Examiners (ACFE), companies with fewer than 100 employees lose approximately $155,000 each year as a result of fraud. Small businesses often do not have the staff for adequate segregation of duties or limited resources for preventing fraud and are known to have a higher fraud rate than larger companies. Some of the more frequent sources of fraud are credit card abuse, inadequate computer network security, and a lack of background checks when hiring employees.

If you are a small business owner, one way to protect your business and yourself is to start by separating your personal banking and credit cards from your business accounts. This will ensure that fraudsters will not have access to all of your finances. Separating your accounts also makes it easier to track your business expenses and identify unusual expense patterns that may indicate fraud activity. Credit card abuse is a frequent source of fraud, and it is important to use your credit cards wisely. Use online bill pay services when possible and store your company credit cards securely. Also, be sure to check your bank account and credit card activity regularly for suspicious charges.

A good firewall, anti-virus, malware and spyware detection software for network security is a good investment and a first line of defense against computer related crime. In addition, access credentials for sensitive bank and accounting information can be used to restrict access and track activity to specific employees. A disaster recovery and back-up procedure is important for many reasons, including providing a historical record of any fraudulent activity and an ability to continue operations if a cyber attack destroys important data.

Studies have shown that one of the most effective deterrents to employee fraud is ethical behavior displayed by colleagues. If an employee witnesses unethical behavior in their co-workers, they are more likely to commit fraud. This illustrates the importance of making good decisions when hiring. Basic background checks are a good business practice for any employer. This is especially true for those employees who will be handling cash, high-value merchandise, or have access to sensitive customer or financial data.

Employees are possibly the biggest point of vulnerability when it comes to fraud. They are also your first line of defense. Regular training sessions should be held on how to display integrity in your actions and teach basic security threats and fraud prevention measures. Policies that guide employees on the proper use and handling of confidential information and resources should be developed and demonstrated to the organization. Owners and top managers of the company have the responsibility of setting the vision for the entire organization and that includes creating a tone at the top the leads with an example of strong ethical behavior.

Following is a fraud risk assessment tool that was developed by the ACFE and published in the Journal of Accountancy. What does your score indicate?