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Fraud prevention for small businesses – steps you should take now

Fraud is a real problem for businesses of all capacities and SMEs can suffer greatly if they’re struck with fraudulent activity, which is why spotting the signs early can save a catastrophic effect on the organisation.

Fraud prevention for small businesses

In the UK fraud affects 1 in 4 small businesses every year – with SMEs losing an estimated £18.9 billion in the past year. In order to protect your business against such risks, it’s important to clearly identify the types of fraud you could expose your business to, the areas of your business most susceptible to fraud and the steps you can take to ensure you lessen the chances of anything happening to your business. Here, Alan Blaney who runs Focus Training highlights fraud prevention tips for small business owners.

Types of fraud to be aware of

The types of fraud a small business could be exposed to is no different to a large corporate one. However small businesses are likely to be hit by fraudulent activity, especially newly established ones due to their development in commercial awareness/handling a newly formed business.

There are 5 main risk areas that fraud can fall under:


Sometimes this comes under low-level theft and generally involves misuse of company services. Fraud in regards to your assets covers the following areas:

  • Cheque forging
  • Cash theft
  • Product and/or service theft
  • Expenses theft
  • Compensation fraud

Payroll and accounting

An employee might be tempted to tamper with company accounts to cover up their own fraudulent activity. Payroll fraud occurs in almost 27% of all businesses, but twice as much in small businesses. Fraudulent activity in regards to financial assets through payroll and accounting include:

  • Larceny (also known as embezzlement)
  • Fraudulent reimbursement (through accounts payable/receivable)
  • Fake supplier set-up
  • Ghost employee set up
  • Advanced payment fraud
  • Ex-employee kept on the payroll (with pay diverted to the fraudster)


Fraud can also arise through accessing sensitive data that can be used for someone else’s (illegal) benefit or sold to third parties. Such activity includes:

  • Trade secret theft
  • Access to personally identifiable information (PID)


Bribery and corruption can fall under fraud due to acting upon or omitting a bribe with the intent of financial gain (whether beneficial for the other party or not). Activity includes:

  • Bribes and kickbacks
  • Product substitution without prior consent


Manipulating accounts payable for one’s personal gain is one of the most common ways criminals commit fraud. Suppliers can even get an ‘insider’ employee to find areas in the business that are weak and attack on said areas. Other vendor-related acts include:

  • Billing schemes
  • Overbilling/overcharging
  • Extortion schemes

Top tips for preventing small business fraud

Screen your applicants

By hiring the right employees you can reduce fraud from happening internally. Conduct strict background checks, especially on employees who are handling inventory and monetary assets daily. Screen for any past criminal convictions, past employment and education before making an informed decision on hiring staff.

Before performing such checks, ensure you understand and comply with legal requirements for obtaining consent from the applicant.

Have a theft-reporting system

Some employees may feel intimidated or reluctant to report witnessed acts of fraud in fear of being exposed for whistleblowing. Have a policy that makes it easy for employees, suppliers, vendors and customers to report suspicious activity anonymously. Ensure your employees understand what falls under the categories of fraud and that all reports are treated confidentially.

Have a fraud policy

Having clear policies that cover every aspect of your business (both tangible and intangible) will form a foundation of protection against internal and external fraud.

Ensure your business policies are fully documented in a business handbook that clarifies expectations, conduct, what defines fraud, and the consequences of violating all terms.

Lead by example

By creating a positive work culture you are encouraging a respect not only to yourself as a business owner but to the company ethos as a whole. It is essential that businesses owners and any other senior management are active role models of an open door policy and integrity.

Make it clear in your employee handbook that your company has a zero-tolerance policy for any kind of theft. Ensure investigations are followed through upon every incident witnessed.

Monitor cash handling

Make sure you have cameras pointing at all cash registers or any other areas where inventory is kept and that footage is recorded and stored safely. Potential fraudsters are less likely to make a move if they know they are being watched.

Conduct surprise audits

Catching employees by surprise could be one of the best ways of discovering fraudulent activity.

The nature of these audits can have a strong preventative effect as well. We also advise companies to state in their fraud policies that random audits will be conducted to ensure internal controls aren’t being exploited.

Watch employee behaviour

Watch employee behavioural changes such as lacking performance, excessive customer attention or suddenly taking unpaid overtime to ‘get work done’ or any other employees who have access to the most sensitive parts of the company.

Some employees may never take a vacation which can also be a red flag – you should advise employees to use up their vacation time and stick to regular business hours so you can monitor them closely.

Insist that all employees – especially those with significant responsibility and access to sensitive data take a mandatory holiday of at least one week of consecutive days. Fraudulent employees will be reluctant to do so out of fear of having their criminal activity discovered by someone else.

More data security and starting out.

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