The Risk of Fraud in Small Businesses

Every business would like to think that it’s employees are trustworthy but it would be naive not to recognise that there is always the risk of fraud in a business whatever it’s size. However, the risk of fraud is less likely to become a reality if a business is both aware of the risk and actively manages and monitors it in order to prevent fraud.

Risk of fraudThere are some obvious steps that a business can take to create a culture amongst their employees where fraud is both difficult to carry out but also where it is clearly understood to be totally unacceptable so that innocent employees will not turn a blind eye if they suspect something is amiss. After all fraud is a crime and everyone should be clear about that – no business should tolerate it. This might seem an obvious statement but clearly communicating this to employees is an important step in prevention.

You can do this by Implementing a company fraud policy and making all employees aware of the consequences of fraud: instant suspension from the company, investigation and prosecution, for example. Also make employees aware of their duty to report any suspected fraud. Consider setting up a confidential helpline where suspicions can be raised anonymously. A report by the Association of Certified Fraud Examiners revealed that having a fraud hotline makes employees 70 per cent more likely to report their suspicions so it is something well worth doing.

Train staff to identify fraudulent behaviour but also how to identify the risks of fraud occurring. Whilst fraud prevention steps are often straightforward they are not always implemented in a business. Maybe you don’t think you have time to make the necessary changes but consider the possible consequences if you don’t. There are plenty of automated systems that cannot be easily tampered with that can help you implement fraud prevention measures without making it a time-consuming burden.

Accounting systems, for instance, will have the ability to create different roles with different access so that no one person has enough access to make fraudulent entries. A good system will also have an audit trail that can be checked for irregular activity and an alert system that automatically flags up unauthorised or unusual transactions. Make the most of the technology on offer or, more likely, the technology you already have within the business.

Take a look at these 4 simple steps and check that you have the right controls in place to minimise the risk of fraud in your small business.


It is surprising how many employers do not bother to check references from past employers if they think a person would suit a vacant role, especially if there is some urgency to filling that role. Checking a reference before employing someone is one of the simplest ways to prevent individuals likely to perpetrate fraud from having the opportunity in the first place.


One of the easiest ways to avoid fraud is to ensure duties (and access) are not in the hands of single individuals. This may not be so easy in a small business but one way around simply not having enough employees to segregate duties is to rotate roles every few weeks, where possible.


Check bank statements, check invoices raised and issued, compare budgeted spend with actual spend, check unusual entries that could be suspicious or small recurring amounts that may be under an authorisation threshold.


You may have implemented basic IT and data security controls concerning access to email, internet and software but check out the accounting software you are using – many systems now have highly sophisticated controls that can provide an extra level of protection against fraud.