Fraud. It’s Such A Scary Word.

By Jenny Smith, CPA, CFE

In my career as an auditor of many small and medium-sized business, I’ve found that people generally don’t like to talk about fraud. Some people are afraid their business will be susceptible to fraud and, therefore, they are paranoid to talk about it. Others, especially here in Iowa, have a high level of trust with their employees and believe it would never happen in their business. The fact is, we should all be talking about fraud to protect our businesses.

The Association of Certified Fraud Examiners 2018 Report to the Nations: Global Study on Occupational Fraud and Abuse cites some staggering statistics regarding fraud.

With the number of cases being significant and losses being substantial in small businesses, all business owners and managers should be taking steps to prevent fraud in their business.

Businesses with less than 100 employees also face different risks for fraud to occur in their organization.

Corruption is the most common in small businesses. 70% of corruption cases are perpetrated by someone in a position of authority and 50% of the cases were detected by a tip. A code of conduct displaying an ethical tone at the top and a whistleblower hotline can be key detection methods in a corruption case.

The other risks related to small business can be tied back to how strong the internal controls of the organization are. The internal controls are the checks and balances implemented within the organizational processes that ensure no one has the complete control of a process. In small organizations, this can be difficult due to a limited number of staff. Often the owner or key manager is needed to provide adequate segregation of duties. Internal control weaknesses are responsible for nearly half of all frauds and the lack of internal controls is the primary control weakness that contributes to occupational fraud. In small businesses, it is very important for the owner or key manager to be reviewing monthly financial statements and bank statements. They should ask questions for anything that looks out of the ordinary and review the supporting documentation to ensure the transaction has been properly recorded and relates to the business.

Fraud can be detected and losses mitigated by knowing the red flags of fraud. In 85% of cases, fraudsters displayed at least one behavioral red flag and in 50% of cases they exhibited multiple red flags. Red flags can vary by position and by gender but it’s important to know your employees’ behaviors, which behaviors might present greater risk, and question any unusual changes in behavior. The fraud perpetrators can also participate in misconduct other than the fraud such as bullying or intimidation, excessive absenteeism, or poor performance evaluations.

If all these statistics have you worried and you’re ready to talk about fraud, MHCS can help ease your concerns. Here are some ways we can help.

While talking about fraud can be scary, the consequences for not preparing can be even scarier. Let MHCS help you put a plan in place to protect your business.


ACFE Benchmarking Report
Fraud Prevention Checkup
Report to the Nations
Fraud Week

Jenny Smith, CPA, CFE | Director