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Fraud Unveiled: Protecting Your Small Business from Hidden Threats

Fraud poses a serious challenge to the survival and prosperity of small businesses. In this blog, we're going to take a deep dive into the unsettling world of small business fraud.

A photo depicting a shadow of a person in a jail cell representing the unknown threat of fraud to your small business

Thousands of fraud cases get reported by small businesses each year - but that’s just a portion of fraud that actually occurs. About 42% of cases are never reported, and shockingly, only about 61% of fraudsters are fired. (ACFE)

The Association of Certified Fraud Examiners (ACFE) reported that small businesses (those with fewer than 100 employees) experienced the highest median fraud losses compared to larger organizations.

I can tell you from experience finding fraud in your company is a heart-wrenching ordeal. It not only wreaks havoc on business finances, but it also shatters the trust you’ve worked so hard to build. In small businesses, fraud is particularly insidious because we come to think of our employees as family, especially when they’ve been there since the beginning.

Here’s the thing - 85% of fraudsters display behavioral red flags! (ACFE)

But we often overlook the signs when we are close to the situation or care about the person.

The most common types of fraud in small businesses include:

  • theft of cash or inventory (embezzlement)

  • manipulating financial records,

  • and corruption (e.g., bribery or kickbacks)

And no, it’s not just walking away with money from the cash drawer (although that happens too.) Some fraudsters concoct elaborate schemes to cover their tracks - such as fake vendors to pay themselves, credit card charges for personal expenses, ghost employees to collect a second paycheck, Accounts Receivable collections to a personal account - the list goes on.

Don’t get caught off guard! Here are some basic internal controls that are recommended to prevent fraud in your company.

Segregation of Duties

Ensure that no individual controls multiple stages of a transaction. There should be an oversight mechanism built into each process. IE: One person opens the mail and logs the payments, and another person takes the checks to the bank for deposit.

Clear Policies and Procedures

Physical Controls

IT Controls

Regular Reconciliations

Monitoring and Review

Internal Audit

Training and Awareness

Management Review and Oversight

Continuous Improvement

So what are the red flags, you ask? The top five common traits among fraudsters are:

  • Living beyond their means

  • Financial difficulties

  • An unusually close relationship with a vendor or a customer

  • Control issues and unwillingness to share duties or information

  • Irritability, suspiciousness, and defensiveness

But remember - 15% show no noticeable signs at all!

For smaller organizations, fraud prevention could look like an independent Bookkeeping, Accounting, or CFO service to reconcile the accounts and prepare monthly reporting directly to the business owner. They may also review departmental controls periodically and make suggestions for better processes.

Sometimes it takes a fresh set of eyes on your organization to call out irregularities that you hadn’t noticed before.

If it’s time to step up your fraud prevention game, call us, and let’s see how we can work together to protect your company.

We got your back,

business card and photo of the blogger. Marisa Snow, founder and CEO of Snow Business Solutions


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