Why Small Business Don't Report Fraud
Many small businesses do not pay enough attention to fraud prevention and detection. Oftentimes, when fraud is discovered, usually months or years and hundreds of thousands of dollars in loss later, they simply terminate the employee, ignore the fraud and count their losses. Small business owners list the fact that it is too costly and time consuming to try to prosecute and recover stolen assets as well as costly and time consuming to implement the necessary preventative measures such as fraud awareness training, risk assessment, providing a hotline, or even conducting regular account reconciliation and audits. These businesses worry about the loss of their reputation as well if the fraud becomes public. No one wants to work with a business who has a reputation of fraud. In a fraud case of a family owned small business, the trusted bookkeeper embezzled $2,000 monthly from his employer who was also his uncle. This amount may not seem like a lot, but it amounted to $120,000 over the 5 year period. That amount is a vast number for a small business to lose. *David* rationalize his actions by telling himself that it was his bonus to himself for working hard to keep the business organized and for collecting receivables. The Association of Certified Fraud Examiners (ACFE) noted that it is the people closest, with the least segregation of duties and the most trusted that commits fraud. These people have broken their fiduciary duty. This is not to say that small businesses should not trust their employees, but a rule of thumb is to “trust but verify”. Not investigating and reporting fraud leaves the company vulnerable to more fraud and the perpetrator on the loose. Many perpetrators who are not prosecuted simply go on to work at another company and continue to commit fraud, leaving a trail of victims, mistrust and losses behind them. For small businesses to implement fraud prevention measures, the benefits far outweigh the costs of implementing the measures.
*Name has been change to protect identity*