Small companies enduring heavier losses with fraud

By Marcus Green
(Louisville, Ky.) Courier-Journal
Dec. 2, 2002

With the misdeeds of giant corporations such as Enron, WorldCom and Global Crossing splashed across newspapers and ruling the airwaves, big business might appear to have the market cornered on cooked books.

Think again. Small businesses are more susceptible to accounting fraud, according to a report by the Association of Certified Fraud Examiners.

Businesses with fewer than 100 workers are more likely to get slammed with fraud losses - a median of $127,500 - than companies with more than 10,000 employees. They registered average losses of $97,000, according to the 2002 Report to the Nation on Occupational Fraud and Abuse.

Losses to small businesses can be fatal. Nearly 50 percent of the time, the survey said, victims recover less than 25 percent of their losses through restitution, civil judgments, out-of-court settlements and insurance.

Most dangerous scenario? A single employee keeps the company's books, collects the money, writes checks and reconciles the bank account.

The Association of Certified Fraud Examiners suggests that small businesses institute at least three internal controls: Don't allow one employee to handle all cash transactions, have the owner review the monthly bank statement to look for unusual deposits or payments and consider an annual review of company finances by a specialist in workplace fraud.

Catching employees who steal company money is often a matter of following a paper trail of deposits and withdrawals. For small retailers, it can pay to have surveillance cameras installed. Stan Moore, a partner in MidAmerica Security Systems Inc. of Clarksville, Ind., which installs closed-circuit systems for small businesses, industrial sites and commercial buildings, cites, for example, an owner of several sandwich franchises who is concerned about the security of his stores.

"The common complaint is, 'Well, I can't be everywhere all the time,' " Moore said. "Well, actually now you pretty much can be because you can remotely, digitally access your different facilities."