Whilst we all want to trust our workers and we know that, for the most part, all our workers are honest, there continues to be regular occurrences of employee-perpetrated fraud in small businesses within Australia.
Employee perpetrated fraud is an issue for all organisations but according to the Association of Certified Fraud Examiners in their last Report to the Nations 2022, smaller businesses are particularly vulnerable. This can be because smaller businesses often lack systems, controls, training and general awareness of the risks they face.
The report said, “Small organisations face unique challenges in combatting fraud from limited financial resources and smaller staff sizes that require many individuals to perform numerous functions, to the large amount of trust needed to keep operations running and the business growing. Unfortunately, that means that many of the protective anti-fraud controls that larger organizations rely on are simply not enacted within small businesses”.
Much of the occupational fraud in small business goes unreported or at the least gets only minor media coverage, which sees it “fly under the radar” for many business owners.
So, what can small-business owners do to recognise if fraud is happening and how can they prevent it?
First, here are five red flags for a small-business owner that something might be afoot in their organisation:
- Employees resisting job rotation or refusing to take annual leave.
- Missing stock, which can’t be attributed to other factors like shoplifting.
- Reimbursement irregularities including things such as travel costs etc.
- Unusual purchases on company credit cards or increases in card spending.
- Employees appearing to live beyond their means or making significant large purchases.
What are some steps small-business owners can put in place to prevent occupational fraud?
- Ensure segregation of duties – so that no one person approves transactions from beginning to end; that there is a system of approvals and/or checking by another party.
- Ensure employees take chunks of annual leave so that their job is performed by another team member or undertake job rotation on a regular basis.
- Conduct a Fraud Risk Assessment – engage a suitably qualified expert to help you complete this activity within your business.
While we want to exist in an environment of positive working relationships with harmony and trust, being aware of red flags and having some systems in place in your business could help you prevent incidents of occupational fraud, or at the very least detect them early if they’re happening to you.
With the upcoming holiday season placing additional financial pressure on individuals as well as time pressures and general “busyness” in the workplace, ‘tis the season to be additionally vigilant with regard to this risk.
