Fighting Fraud: Eight Tips To Keep Your Small Business Safe


Scammers hurt small businesses in the United States every year. According to the Association of Certified Fraud Examiners, the median loss is a whopping $98,000.

The prevention of fraud requires monitoring the workplace, continuously updated controls, data systems, and special procedures related to preventing fraud and scams. Fraud happens when there is opportunity.

The individual may believe the company owes him or her additional compensation. Perhaps the perpetrator knows precisely how weak the company’s controls and systems are and believes he or she will not be caught.

Some small business owners say they can sometimes spot fraud or scams when “things don’t feel right” or an employee’s behavior has changed. He or she avoids making eye contact or seems nervous. Perhaps an employee adds or deletes a step in the business’ usual process.

Unfortunately, most business owners cannot rely on behavior changes to identify a fraudster.

Some of the ways to prevent business fraud include:

An anti-fraud behavior work place: Principal(s) of the business should clearly communicate that the business is committed to doing what is right for employees, vendors, and customers. Short-term gains achieved when the company does what is convenient will ultimately cost the business more money. The business owners must live as they preach and lead the business to higher ground.

A clearly written policy, process, and procedure handbook or manual: Business owner(s) should provide a clear definition of fraud in the work environment and outline the actions managers take when fraud is identified. All employees must receive a copy of the manual and sign a page that states he or she received it. Management must then enforce the policy outlined each and every time it happens. Principal(s) must be fair.

Thorough background checks for all prospective employees: Requiring a full-scale background check for all new employees creates more expense for the company. Public records, along with commonly requested credit records, can provide insight into the potential employee’s lifestyle and beliefs. Before hiring a new employee, request and check references. Contact each college or university listed by the applicant to confirm provided information.

Vendor references: Many small business owners pull back when it comes to vendor relationships. At the start of an approved new vendor relationship, check and double check shipments and invoices.

Internal systems and controls: These should not be left in the care of one employee .For example, separate steps relating to accounts payable and receivable, payroll, bank deposits and accounts reconciliation, and so on. If the business has just a handful of employees, the business owner will likely perform some of these tasks. Regardless of how the business duties are divided, the business must hire an external CPA to review financial records, systems and controls every quarter.

Safety of checkbooks, bank statements, broker records, stock and bond certificates, and petty cash funds: A small business may leave these items in the custody of the office manager, bookkeeper, or accountant. At least two people should maintain the physical custody of these items to ensure blank checks are not lost or physical securities do not disappear. The business owner(s) should make frequent but not regular inventory checks to ensure that all is in order. And of course, having confidence in the security of your business checks doesn’t hurt.

Vigilance about detecting fraud and scammers: The business owner(s) should cross-train workers to check each other’s work, cover lunch breaks, or vacation periods. Co-workers are likely to embrace an anti-fraud work place when everyone is focused on doing this right. Telling employees “This is an anti-fraud environment” is not as powerful as showing the business is committed to perceiving and detecting fraud.

Employee support programs: No matter what level the employee’s salary or compensation, he or she is exposed to many external pressures. He or she is likely to face financial pressures, marriage or relationship problems, or drug and/or alcohol abuse some time in life. The employer may engage a third-party confidential hotline to assist employees when they are in need.


Anti-fraud behavior begins with management. Work place awareness and the development of anti-fraud behavior is essential to preventing scammers from injuring the business. Cross-trained employees help to detect fraud.

Photo: Mark Fischer / CC 2.0

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