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Business Susceptibility to Theft and White Collar Crime – Are You a Target?

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Small businesses are very susceptible to theft and white collar crime, as a matter of fact, a staggering number of businesses falter and even fail because someone on the inside – an employee, vendor or even a partner – steals money, goods, data or intellectual property from an organization.  Our first article in this series discussed the Early Warning Signs or “Red Flags” of Fraud.

door wide openFor small businesses, the median loss due to theft and white collar crimes is greater than what has occurred in Fortune 500 companies.  In fact, one third of all business bankruptcies are due to employee theft and American businesses lose 7% of their annual revenues to fraud.

According to a 2012 study by the Association of Certified Fraud Examiners, a vast majority of fraud is committed by individuals working in one of the following six departments:

  • accounting
  • operations
  • sales
  • executive/upper management
  • customer service
  • purchasing

I recently had the opportunity to participate in a webinar called, Stealing More Than the Secret Recipe – Identifying and Safeguarding Against Business Fraud, with two really great ladies;  Kimberly Shannon of Off-Site Business Services, Inc. and Shamese Shular of SHU Books.  Each of us had specific topics relating to business fraud and I’ve decided to take my sections and turn them into a series of blog posts over the next couple of weeks. I believe that both Kimberly and Shamese will also be turning their sections of the webinar into blog posts – so be sure to visit their websites for additional information on this topic as well.

Why are small businesses targets of theft and white collar crimes?

Small business owners never intend to leave their doors wide open to theft and white collar crime – it just sort of happens; and unfortunately, small businesses – especially those that do not have regular audits have every reason to be concerned about fraud.

These major factors contribute to small business fraud, again this is not an all inclusive list:

  • Inadequate employee pre-screening – small business owners are often too quick to hire employees because they need help with accounting, operations, purchasing, etc.  Rarely will a small business owner check references, criminal records or professional recommendations of potential hires or require applicants to undergo drug screening.  Most applicants realize this.
  • Limited or lack of internal controls – a small business usually has insufficient personnel to implement internal controls, a single employee may have multiple roles within the company; as a result these employees are often unsupervised.  For many small businesses a one person accounting department is the rule – not the exception.
  • Business owner becomes too trusting – trust, the very thing that makes a small business a pleasant place to work also enables thieves to succeed.  Never trusting your employees is a bad thing; so is always trusting them.  The goal is to strike a balance, or, as Mark Twain said, “Trust everybody, but make sure YOU cut the cards.”

As small business owners we are all guilty of these things.  Sure, perhaps we call a couple of references (not knowing that these references are really friends of the potential employee and not a previous employer).  We are too eager to turn over all the paperwork and/or accounting requirements involved in running our business so we can actually do the things that makes our business run – after all we aren’t accountants – we are (fill in the blank).

Download the slides from the Stealing More Than the Secret Recipe – Identifying and Safeguarding Against Business Fraud webinar.

Look for the final article in this series – Simple, Inexpensive Controls You Can Put Into Place to Discourage Fraud next week.

Please feel free to leave a comment about your thoughts on why small businesses are susceptible to theft and white collar crime.


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About Your Host:

Nancy Smyth, Certified QuickBooks ProAdvisor

Nancy Smyth, Sunburst Software Solutions, Inc.
QuickBooks Construction & Payroll Expert

I've been using and supporting QuickBooks products since the early 1990's. I've worked with thousands of contractors, assisting them with QuickBooks setup, Certified Payroll Reporting requirements, AIA Billing and Weighted-Average Overtime.

QuickBooks is a powerful product, but learning how to use it in your construction business can be difficult. I hope you find resources available here to be helpful.

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