This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
TheStreet Open House

4 Ways to Avoid Small-Business Fraud

Stocks in this article: GOOG

But employees are less likely to attempt fraud if they know the company is at least trying to prevent it. Occasional audits can help prevent money laundering, and installing cameras in loading zones can prevent property theft. Sounds like common sense, but many small-business owners don't employ common sense.

"Many times the entrepreneur has blind faith," Springer says. "And then the bookkeeper can write expense checks to companies that don't exist."

More than 80% of frauds in the ACFE study were committed by people in one of six departments: accounting, operations, sales, executive/upper management, customer service or purchasing.

3. Invest in fidelity coverage

Most business owners are familiar with insurance fraud. But fewer are familiar with fraud insurance -- aka fidelity insurance -- which protects businesses in case of losses due to embezzlement, forgery, robbery, burglary and so on.

"Sometimes to save money, people won't buy fidelity insurance, but in the scheme of things it costs peanuts," Springer says. "We had one case in which the bookkeeper was the one who said they couldn't afford the fidelity insurance, and it was the bookkeeper who was stealing the money."

4. Enable anonymous whistle-blowing

In a small business, where the whole company works side by side, employees might worry about the ramifications of ratting each other out on fraudulent behavior -- unless they can do so anonymously.

Hire a third-party intermediary to field anonymous tips and help determine whether an accusation is valid or just sour-grape complaining. According to the ACFE, such a system can be even more effective than an audit.

"Staff members are an organization's top fraud-detection method; employees must be trained in what constitutes fraud, how it hurts everyone in the company and how to report any questionable activity," reads a recent ACFE study. "Our data show not only that most frauds are detected by tips, but also that organizations that have anti-fraud training for employees and managers experience lower fraud losses."

-- Reported by Carmen Nobel in Boston.



Follow TheStreet.com on Twitter and become a fan on Facebook.

2 of 2

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
DOW 16,614.81 +215.14 1.31%
S&P 500 1,941.28 +37.27 1.96%
NASDAQ 4,419.4780 +103.4040 2.40%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs