How small businesses are vulnerable to fraud


A small business is more than a bottom line for an owner; it is often their heart, soul and passion. By taking the plunge and setting up and running a small business, all your time and energy becomes focused on making your life’s dream a success. However, with all of your energy invested in your business, you can become increasingly vulnerable to fraud. It is essential to have a basic knowledge of the most common fraudulent practices that can infiltrate even the most successful small businesses without their owner’s knowledge.

Trust

There has to be an element of trust between an owner and their staff. However, the likelihood of internal fraud happening is just as likely with long-term employees as with a contract worker. It is not good enough to give a bookkeeper unbridled access to financial comings and goings. Instead, as owner you should retain crucial oversight over financial affairs when possible, to identify unusual activity. A curse of success or growth is that it can become harder to monitor cash flow, however, it remains a necessity of best practice for any owner.

Payroll Fraud

When a company grows from a very small enterprise into something larger with at least 70 employees, the payroll can become significantly more complex. Once you add additional overtime, it can become difficult to scrutinise, especially with the cooperation of an employee and bookkeeper. It is essential to gain a working knowledge of the payroll system and make book keepers accountable in their monthly reports.

Theft of Cash

Small businesses without a formal receipt process are particularly vulnerable to the disappearance of physical cash. From the outset of setting up your business, it is essential to have a streamlined process, both for an effective financial process, and also to maintain essential supervision of cash within the business.

Online banking

An increase in online banking has made small businesses vulnerable to funds being transferred easily to erroneous accounts. It is essential to set up regular catch ups with the accounts team to monitor all transferred money, where possible. Cybercrime has never been more sophisticated and small business owners need to arm themselves with updated information on threats, to respond accordingly with their relevant financial institution.

False Invoicing

It is imperative as an owner to have a basic oversight over every supplier that is dealt with within their business. False invoicing is an increasingly popular method of fraud, either by creating false suppliers, or by paying a legitimate supplier and diverting the cash into an alternative account. By having a basic requisite knowledge of suppliers, this eliminates this unfortunately common method of fraud.

Invoice Email

This involves perpetrators pretending to be legitimate suppliers advising of changes to existing payment arrangements. The fraud may not be detected until too late – when the business is alerted by complaints from suppliers that payments were not received. Regular account check-ins can help guard against business owners falling victim to this type of fraud.

An owner has invested far more than money into their business, they have sacrificed time with family and friends to make their passion a financial success. Any good owner is reliant on an exceptional team around them, but equally they need to keep firm control over financial processes and not over rely on delegation, particularly during periods of expansion. The potential detrimental financial costs of being too hands off within the business are too large to contemplate.


About the author 

Deborah Wood has over 15 years’ experience within the fraud, investigations and security industry. As Head of Fraud Risk Management at OFX (formerly Ozforex), she is responsible for developing and implementing the long term fraud risk strategy for the future direction of the company. Prior to this, Deborah worked in the Financial Services and eCommerce Industries across the United States, Asia and the United Kingdom.