The Big Cost of Small Business Fraud
August 21, 2019
Small business fraud happens across all countries and social status. Although the figures we shared in this write up is a couple of years old, the trend remains the same and it is clear that small business fraud is costing companies a huge amount of money each year.Losing Money to Fraud
The Association of Certified Fraud Examiners releases the Report to the Nations on Occupational Fraud and Abuse every couple of years. It showed that in 2016, business fraud for 114 countries clocked in a median loss of $150,000 per company and that it took approximately 18 months before fraud was detected. Another shocking fact is that 76% of fraud was by people from each company’s customer service, purchasing, operations, sales, management, and accounting departments.Effect of Fraud for Small Businesses
Given the median figure lost to fraud, it isn’t difficult to imagine how much fraud affects small businesses. Generally speaking, small businesses do not have enough buffer to cover a median loss of $150,000, unlike bigger businesses. A business worth $500,000 will no doubt be crippled by a loss of $150,000 versus a business worth a couple of millions which will have an easier time bouncing back. Note too that despite fraud getting uncovered, 58.1% of all victim companies do not ever recover any of their fraud-related losses.
Now, consider too that more than 23% of victimized companies lose more than $1,000,000. A loss this huge will force a small business to close doors or downsize to the point of only operating with a skeleton crew.It is Time to Act Against Fraud
With the scary figures shared above, there is no better time to act against small business fraud than now. There is no need to wait until you uncover fraud in your organization when you can work against preventing it now. If you are a small business owner, you may want to take a closer look into how you run your company because it is small businesses that often do not have the correct measures to prevent occupational fraud from happening, to begin with.
Try to look from the top going to the bottom. Why? Because chances are that you’ll lose more to a manager committing fraud than an employee sneaking out a few office supplies home. Optimizing your internal control is one of the best ways you can prevent fraud in your business.
You can also implement counter checks to prevent fraud. You can start with making sure that there are multiple people with separate duties who are responsible for handling accounts payable and accounts receivable. This will minimize the possibility of an individual manipulating records to pocket some of the company’s funds. If this is not feasible for you, you can make use of digital tools that you can access anywhere you may be or perhaps outsource your bookkeeping so that a third party can easily detect any suspicious activity.
There are a lot more solutions to prevent small business fraud other than the ones outlined above. If you’re keen to know more, contact us.