Small-business Fraud

ACCORDING TO the Association of Certified Fraud Examiners (ACFE), a leading anti-fraud organization, small businesses are particularly vulnerable to fraud, and are even more likely to become the victims of fraud than larger businesses. The classification of a business as small usually refers to those businesses with a total of less than 100 employees. In a 2002 study conducted by the ACFE, losses to small businesses that were estimated on a per-employee basis were approximately 100 times greater than those losses in large businesses (classified as having 10,000 or more employees).

The average fraud loss in small businesses was approximately $127,000 in 2002. Other estimates state that losses due to fraud may cost small businesses around 6 percent of their annual revenue. The ACFE and other anti-fraud professional organizations provide extensive information on the topic of small-business fraud, including examples of different forms of fraud, and also potential steps that businesses can take to prevent fraud victimization.

Like any company, small businesses may be victimized by fraud both within and from outside the organization. Fraud from within is committed by employees against the business, while fraud from outside often is committed by vendors or potential vendors offering to provide services to the business. Regardless of the type of fraud that occurs, experts in the field agree that the key to prevention starts with awareness. If small businesses begin by recognizing that fraud is a possibility, they can then take the appropriate steps to detect and prevent fraud. Businesses should accept the fact that fraud is very common, and can happen to anyone at any time. An appropriate ethical standard should be developed to deal with both employees and outside associates even if the business feels very close to them. Many recent examples have shown that fraud may be more likely when there is too much trust by businesses.