In today's fast-paced business world, it can be easy to overlook the importance of operational controls in your small business. Now, however, it is more important than ever to safeguard your business and its assets. Did you know the typical organization loses 5 percent of revenues in a given year as a result of fraud? What would that add up to for your business?
Each year, the Association of Certified Fraud Examiners (ACFE) compiles a Report to the Nations. This report contains detailed information about the number of cases of fraud affecting businesses, their impact, the average duration, types of fraud being perpetrated and more. At this point, you may be thinking, "another report filled with meaningless data ... (yawn)". Well, you would be wrong. This annual report provides a wealth of information. Instead of drowning yourself in the minutiae, here is a high-level overview.
Common types of occupational fraud include payroll fraud, check tampering, falsification of expense reimbursements and cash register disbursement schemes. According to the 2016 Report to the Nations, businesses with less than 100 employees accounted for the most common victims of fraud and the median loss per case was $150,000. These schemes can impact any industry—and the longer they go undetected, the larger the financial impact.
Small businesses tend to be targets due to their limited resources devoted to anti-fraud efforts and weaker internal control systems. Being proactive, versus reactive, to these issues empowers businesses and can help reduce the overall damage. Working with a specialist can allow you to assess your organization's key risk areas and develop a plan of action. Before engaging an expert, here are three tips any small business can take to help minimize your risk:
- Create a tip line or hotline.
Companies that provide employees, customers and vendors with an option to report questionable behavior and issues see faster detection times and a significant decrease in overall losses.
- Conduct background checks.
When hiring employees, you have the perfect opportunity to learn more about your new potential team members. Taking this additional step may provide you with valuable information or insights on previous behavior, and other red flags.
- Openly discuss risk management and your policies with your team.
Management is not the only line of defense when it comes to fraud prevention and detection. Clearly communicate with your entire team what is and what is not acceptable behavior. Let them know how to voice any concerns they may have. Additionally, be sure to discuss this regularly—not just during new hire training or annual strategic planning sessions. Being vocal and diligent about your expectations and your team's role in the process can yield positive long-term results.
Written by Leandra Williams, Owner of Stingray Advisory Group LLC and Co-Owner of Gold Leaf Designs LLC. Williams has over 12 years of experience in leadership, sales and marketing, and graphic design. Through these organizations, she assists businesses with creating strategies for growth and sustainability through strategic planning, marketing concept development/implementation, risk management solutions and financial organization. She is actively involved in the community, sitting on several boards and committees. Connect with her by e-mail at [email protected].