Wednesday, March 25, 2015

Fraud in Small Businesses

Small business fraud is common yet not understood well. This is not small businesses committing fraud, I am talking about small businesses being the victims of fraud. Its hard for small businesses to recover from fraud, many owners simply don't have the resources (i.e. cash flow) to recover and those who do find it extremely difficult to regain the trust and confidence of customers. Recently I read an article by Dr. Bonita Kramer in the Journal of Small Business and Enterprise development (find the article here) in which she explains the fraud triangle: unsharable pressure, perceived opportunity and rationalization. The triangle is in relation to the pressure employees are subject to and how that pressure leads to some committing fraud. The main point is this, the best way to avoid fraud is to make clear to employees that fraud will be detected. The best way to detect fraud is to be actively involved in the management of your small business and have proper internal controls, don't place employees in a position where temptation to commit fraud is too great!

What are your thoughts on the fraud triangle?