Written by Krystal Siebrandt, CPA, CFE

As a business owner in today’s economic environment, you may be faced with challenging situations you’ve not experienced in the past. Hopefully, fraud is not one of them. However, the hard reality is that when pressures arise in people’s lives, both professionally and personally, instances of fraud also increase.

Often, it’s only the large financial fraud cases within nationally-recognized corporations that make headlines. Unfortunately, this can lead to a false sense of security for business owners who may feel that their company isn’t big enough to fall victim to the type of schemes they hear about in the news. We assure you that this is not true. In fact, according to the 2012 Association of Certified Fraud Examiners’ (ACFE) Report to the Nation on Occupational Fraud and Abuse, of all the fraud cases sampled, small organizations suffered the largest median losses, having particular vulnerability due to a lack of the same anti-fraud controls found within their larger counterparts. Examples of fraudulent activity that our firm often encounters within small to medium sized businesses include theft, credit card abuse, fictitious expenditures, and overstatement of hours worked.

Regardless of the size or nature of your operations, the effects of fraud are far-reaching. While, the obvious effect is the damage to your company’s financial position (which is often unrecoverable), the reputational damage you incur can have an even greater impact, especially as you consider customer retention and vendor relationships. For nonprofit organizations, a hit to their reputation will impact everything from donor support to volunteer and board member recruitment.

With all this in mind, you may still feel safe from fraud because of the trust you have in your employees. However, according to the ACFE report, the typical fraud perpetrator was a first-time offender and less than 8% of the perpetrators in the study had prior fraud-related convictions. Unfortunately, when given the opportunity and with the right internal rationalization, good people can do bad things.

So, what steps can you take to protect your business from fraud? In addition to establishing a culture of integrity and providing comprehensive anti-fraud training for your employees, one of the best things you can do is design and implement effective internal controls. Internal controls are essential to the prevention and detection of fraud and the protection of resources, both tangible (i.e. property and equipment) and intangible (i.e. reputation). Examples of good internal controls include assigning related duties to different staff members, reviewing bank statements and reconciliations regularly, approving invoices as checks are signed, locking and protecting valuables, and watching for significant behavior or lifestyle changes in employees. A lack of internal controls creates the opportunity for fraud.

If you are a business owner or leader who is interested in learning more about protecting your company from fraud, HBE’s team of Certified Fraud Examiners would welcome the opportunity to provide you with an external evaluation of your internal control structure and provide suggestions for improvement. For more information, please contact our office at (402) 423.4343.

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