Small business owners can be made to feel like they’re in between a rock and a hard place when it comes to fraud. According to the Association of Certified Fraud Examiners (ACFE), companies with fewer than 100 employees suffer greater losses per occupational fraud scheme than their larger peers, those being $141,000 vs. $130,000 for companies with between 100 and 999 workers. One prohibitive component of fraud is that fraud prevention is expensive. However, there are many affordable ways to protect your small business from fraud, even if you’re constrained by a small business budget.
Assess & Prioritize Threats
One key to low-cost fraud prevention is to prioritize risks. Depending on your industry and operations, you may not need to worry much about certain types of fraud. For example, a law firm probably isn’t as vulnerable to inventory theft as retailers and manufacturers are. However, billing fraud and corruption can be real concerns in the legal services sector.
At the same time, recognize that, regardless of industry, you must spend money to prevent hacking and other cybercrime. At a minimum, you’ll need reliable security software that includes virus protection and firewalls. Most companies need to shield their IT networks, individual computers, wi-fi networks, and business-issued mobile devices. But if you have employees working from home or other security risks, you may require a larger budget.
To help you cost effectively allocate antifraud resources, consider engaging a fraud expert to conduct a risk assessment. The expert will examine areas where fraud is most likely to happen (such as in accounts payable, purchasing, and IT), and whether internal controls are in place to prevent it. Then the expert will review the controls you currently have to learn if they can be breached — and how easily. The assessment will conclude with a report that should guide your antifraud spending. Pay attention to the greatest threats that aren’t currently addressed by internal controls.
Do It Yourself
Another budget-friendly way to prevent fraud is to do some of the work yourself. For example, ask us for guidance on how you and your managers can recognize red flags and conduct internal audits. Implementing inexpensive internal controls — such as segregating accounting duties by assigning different employees to complete certain tasks — also can be very effective.
Or you might occasionally retain us to review receipts and disbursements for irregularities or perform an inventory verification. If you keep these reviews confidential before they begin, any fraud perpetrators are more likely to be caught off guard.
Cheap & Free
Other basic antifraud controls are relatively inexpensive — particularly if you don’t need to use them often. For example, you may hire only a few new employees a year, so you can probably afford to conduct criminal background checks on each one.
And one of the best ways to prevent fraud is free: Maintain an ethical “tone at the top.” This means you and your executives model transparency and honesty. It’s also critical to pay and treat employees equitably and to take action on any complaints about unfairness. Research has shown that employees who feel underpaid and underappreciated sometimes use their perceived treatment to rationalize theft.
Give Employees A Voice
Ultimately, effective fraud protection isn’t about how much you spend but about how strategically you apply your financial resources. By focusing on the biggest threats, enforcing controls, and modeling ethical behavior, even modest antifraud investments can pay dividends. Contact us to discuss inexpensive methods to protect your business’ assets from crooks.
