By: Michael Blevins, CFE
Occupational fraud poses a significant threat to small and medium-sized businesses, often leading to substantial financial losses. Understanding the risks and implementing preventive measures are crucial steps in safeguarding your business.
Understanding Occupational Fraud
Occupational fraud involves employees deceiving their employer for personal gain. Common forms include asset misappropriation, corruption, and financial statement fraud. Businesses, particularly those with fewer than 100 employees, are especially vulnerable due to limited resources for comprehensive internal controls.
According to the Association of Certified Fraud Examiners (ACFE), businesses with fewer than 100 employees experience a median loss of $150,000 per fraud incident. This figure underscores the severe impact that fraud can have on smaller organizations, potentially threatening their financial stability.
Real-World Examples
Instances of employee fraud are not uncommon. We seldom hear about them, because no business wants to be in the news for this reason. In a local case, an employee was terminated for charging $2,500 in personal holiday gifts to their company credit card. Fortunately, this was caught early after an internal review was performed.
In a more extreme example, a former financial manager for the Jacksonville Jaguars was sentenced to over six years in prison for embezzling more than $22 million from the NFL team – and nobody noticed! The longer fraud occurs, the more damage it typically does.
Preventive Measures
To protect your business from occupational fraud, consider the following steps:
- Implement Strong Internal Controls: Establish checks and balances, such as segregating duties and conducting regular audits, to deter fraudulent activities.
- Conduct Employee Training: Educate staff about fraud risks and promote an ethical workplace culture.
- Utilize Technology: Employ accounting software with fraud detection capabilities to monitor unusual transactions.
- Establish a Whistleblower Policy: Encourage employees to report suspicious activities without fear of retaliation.
Unsure how to get started? Consider contacting the Association of Certified Fraud Examiners (ACFE) to find a Certified Fraud Examiner (CFE) who can assess your business’s vulnerabilities and help implement tailored fraud prevention strategies.
Conclusion
Occupational fraud can have devastating effects on small and medium-sized businesses. By understanding the risks and implementing effective preventive measures, you can protect your company from potential financial and reputational harm.
Michael Blevins is a Certified Fraud Examiner (CFE) with Blevins Associates Consulting, based in Palm Springs, California.