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Fraud Awareness Week (November 11 – 17th): Small Business Owners Beware!!!

Open Letter to Small Business Owners:

It’s ‘Fraud Awareness Week’ and if you don’t think this applies to you, you might want to think again…

I’m a member of the Association of Certified Fraud Examiners (www.acfe.com) and since 1996 this organization has researched fraud & white collar crime and prepared a “Report to the Nations on Occupational Fraud and Abuse”. The “2012 Study” (http://www.acfe.com/rttn.aspx) has revealed some statistics that should be particularly valuable to small business owners.

For instance, were you aware that it is estimated that:

• “a typical organization loses 5% of its revenues to fraud each year… this translates to a potential projected annual fraud loss of more than $3.5 trillion” worldwide.

Wow!!! But you may say,

“That doesn’t happen in our small company, I know our people & we don’t have fraud.”

Really? Here’s some more statistics on occupational fraud & white-collar crime from the


• 39.3% of fraud occurs in Private Companies (Like Yours…)

• 31.8% of fraud occurs in companies of less than 100 employees (Like Yours…)

• For an average length of time of 18 months before being detected

• For an average loss of $200,000

• 86.7% of all occupation frauds are Asset Misappropriation (or Theft of your Company’s stuff!!!)

• 49% of companies do not recover any losses from the frauds they suffer

• 87% of the time the fraudster (perpetrator) had never been previously charged or convicted of a fraud-related crime (you would have never known…)

• Deterrence/Anti-Fraud programs resulted in significant decreases in time-to-detection and losses vs. companies without these controls.

So if you are the owner of a small company with no anti-fraud controls in place and you don’t think that there is (or has been) occupational fraud in your company, I hope you’re right. However, (like Las Vegas) the ‘odds’ are not in your favor… and how would you know if you don’t have any anti-fraud controls in place and really aren’t even looking, much less attempting to implement any type of deterrence…

Glad you asked!!!

You can minimize your risk (& losses) of fraud & white collar crime by implementing a highly publicized (to the employees) “Anti-Fraud Deterrence & Detection Program”. The ideal situation is to prevent fraud from occurring in the 1st place. By publicizing it to the employees, you will create a deterrence because those that may think about stealing will ‘think twice’ knowing that someone is watching.

The Association of Certified Fraud Examiners provides a “Fraud Prevention Check-Up” that is a good road map for customizing an Anti-Fraud Deterrence & Detection Program :

A summary of this Check-Up is as follows:

• Embrace the core values of Honesty and Integrity at the top and have it become part of the Company Culture.

• Provide salient, relevant & ongoing anti-fraud training to all employees.

• Implement an effective anonymous fraud reporting process for all employees to use.

• Implement & use fraud auditing software (& publicize its use to the employees).

• Implement ‘surprise’ fraud audits where appropriate (& publicize that they will occur).

• Implement fraud risk assessments to proactively identify the Company’s vulnerabilities.

• Institute proper separation of duties, proper authorizations; physical safeguards; job rotations; mandatory vacations.

• Properly screen new employees using prior employment verification; background checks; credit checks; drug screening; education verifications; references.

• Setup employee support programs for the inevitable human conditions of addictions, mental/emotional health, family problems & financial problems.

• Have an open door policy or create an Ombudsperson Program so employees can communicate freely about their job pressures & complaints.

• Provide anonymous surveys to assess employee morale (they really need to be anonymous). Employees with high morale that are invested in the company they work for will protect your company like it’s their own family.

I hope this helps develop an understanding that occupational fraud is a white collar crime that can happen to any company because employees are human and humans are frail. Therefore it can happen to your Company if you let it.


M. Martin Mercer, J.D., CPA, FCPA, CFE, CFF

Mr. Mercer is a partner in Denver, Colorado with B2B CFO® Partners, LLC
He can be contacted at (303) 621-5825 or mmercer@b2bcfo.com,
Bio/Blog: www.b2bcfo.com/partners/mmercer

B2B CFO® has expert witnesses that possess superb credentials and decades of experience spanning all aspects of corporate & small business finance, accounting and government.

B2B CFO® is uniquely positioned to address your need for an expert witness in Business Finance because our partnership is comprised of over 200 practicing Chief Financial Officers (CFOs) throughout the United States, each possessing exceptional credentials and decades of experiences in all areas of business.