Date of Award
Small business -- Corrupt practices -- Prevention, Fraud -- Prevention, Small business -- Management
Fraud is a growing issue that organizations face. In the 2016 Report to the Nations, the ACFE estimated that organizations typically lose 5% of revenues each year to fraud. This is an extremely large cut of revenues that most businesses cannot afford to lose.
The ACFE reports that 30% of fraud victims within their study was small businesses with less than 100 employees (2016). While the median loss per fraud case is the same at $150,000 for for-profit organizations of any size, the frequency of fraud at small businesses is much higher than at large businesses (ACFE, 2016).
Though $150,000 may not seem like a big loss for a Fortune 500 company, this amount can be extremely damaging to a small business. A study by Carland et al., attributed the majority of small businesses failures to occupational fraud (2001). Small businesses are even further vulnerable due to several characteristics prevalent within small businesses that make them the most targeted form of business for fraud.
The focus of this thesis is on best practices in internal controls to help prevent the most common form of occupational fraud, which is asset misappropriation. This form of fraud makes up 83% of all cases reported to the ACFE (ACFE, 2016). While asset misappropriation has the smallest median loss compared that of financial statement fraud or corruption, the ACFE still found that the median loss per case is $125,000. This may not present too large of a burden to larger organizations, however this loss affects smaller businesses quite differently. Thus, it is very important to identify the internal controls most suited to preventing fraud within a small business setting.
Shao, Stephanie, "Best Practices for Internal Controls to Prevent Occupational Fraud in Small Businesses?" (2016). University Honors Theses. Paper 310.