For many small business owners, the reality that “one of their own” may be committing fraud is a difficult concept to grasp. An employee may shine during the hiring and selection process and show up to work everyday. The employee could be a trusted colleague, working well with both management and staff. Their work habits reflect dedication and commitment.

In many small businesses, employees have tremendous autonomy. But when small business owners place too much trust in the employee at the expense of internal controls, it opens the door for the company to become part of a startling statistic. 

Fraud Risk

In The 2020 Report to the Nations published by the Association of Certified Fraud Examiners, organizations lost five percent of their revenue to fraud each year, with the average median loss per case at $125,000. Certain fraud risks were more likely in small businesses than in large organizations: Billing and payroll fraud was two times higher and check and payment tampering were four times higher.

According to Frank Suponcic, Partner in the Advisory Services group at Marcum Accountants and Advisors, “Credit card and expense report fraud are two common financial corporate crimes. EFT and ATM transactions tied to corporate accounts are also often abused. Electronic financial crimes, such as conducting a wire transfer to a personal account or a shell company is another example. Fraud is a breach of trust. And trusting your employee is not an internal control.”

Pocket Change

Small amounts are often overlooked because the dollar amount is less, so business owners don’t have their radar up. Sadly, management and the employee may create the perfect environment for a crime to occur.

As a manager, consider if the employee was properly vetted prior to their hiring with a background check. Then ask yourself a few questions: Has the employee been assigned sole fiscal responsibility based on implied trust? Is the employee in a situation to easily “borrow” a few dollars from the company coffers to get by due to personal needs with the intent of paying the money back?  These are but two red flags. 

Financial statement fraud schemes are least common but most costly, with $954,000 as the median loss. “Fraudsters will often hide bank or credit card statements to mask transactions so no one knows it occurred. While traditionally not the largest type of fraud, credit card and expense reimbursement can total up especially when what began as petty theft accumulates over five to 10 yrs. 

In other schemes, the employee opens a completely fraudulent credit card, usually in the same name, and when the disbursement goes through on the books, it doesn’t stand out. Consequently, the person is benefitting from the fraud knowing other people may have access to the (legitimate) corporate credit card,” Suponcic added. It’s very easy to hide.

Fraud Prevention

So, what steps should your small business take to reduce your fraud risk? Suponcic advises to begin with a Fraud Risk Assessment. Understanding where your company is most vulnerable will guide you to the area’s in need of stronger internal controls. “The business owner has to get more involved, and have their radar up. It’s as simple as that.”


Frank Suponcic is a partner in the Firm’s Valuation, Forensic and Litigation Services group, concentrating on fraud and embezzlement. Mr. Suponcic, who has investigated and managed multi-million dollar forensic engagements, helps businesses investigate payroll, cash receipts, billing, cash disbursements and expense reimbursement schemes.

He regularly assists clients in evaluating their internal controls to help minimize their likelihood of becoming a victim of a financial crime. Mr. Suponcic has written several articles on fraud, forensic accounting and identity theft and is a frequent speaker throughout Ohio on these subjects.

Mr. Suponcic assists clients with litigation support cases involving divorce, economic damages, commercial disputes, and labor relations. He also works with clients on strategic business consulting, management and financial and tax planning.

To learn more about fraud, internal controls, and how to protect your small business, listen to Frank on Biz Chat Ohio’s podcast and download his latest Ebook, Fraud Prevention Measures.

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