"What's with all the racket?"

With company mergers on the rise and Wall Street officials charged with fruad, there's an awful lot of racket going on in the world. But is fraud really going to be an issue for you and your new venture? That depends. Statistics show that only 4% of unsuccessful business ventures are attributed to fraud. However, another statistic states that over 75% of fraud goes undetected. So, chances are, if you’re a small business owner, it could happen to you.

Fraud, at no matter what scale, is never good for a business. But it’s especially difficult when it hits a small business. Small businesses generally are not set up with the kind of internal controls that a large corporation would be. Internal and external audits are not done quarterly or even at all, like they are conducted at a large corporation. It is also difficult to find the source of the fraud in a small business. While the employees may be closely knit or even be family, the tactics used to cover up the fraud are harder to detect in a small business.

So as a Manager what can you do to protect your company? Can’t you just hire honest people? Studies show that even honest people can turn into thieves when faced with a strong enough need. In these poor economic times, it would be in the best interest of an employer to have these internal controls in place before any employee is even tempted:

Create an ethical workplace – punish fraudulent deeds and make no exceptions and let employees know this is the process

• Generate employee buy-in – the manager and his or her direct reports must make it known to employees that combating against fraud is a top priority of the company and that the employees ownership in the company is also at stake
• Provide a system of checks and balances – the employee who pays the bills should not be the person who collects the payments
• Hire an audit team – external audits may not always catch the mistake, but they can see opportunities where no internal methods of control exist to prevent fraudulent activity
• Supervise employees effectively – especially with positions of trust in a company, remain aware of what projects they’re working on
• Create an “employee watch” environment – most reports of fraud have come from other employees so ensure yours feel like they have someone they can go to anonymously with tips
  
  Incorporating these internal controls into your small business will help you be less likely to be a victim of fraud. You may not be a large corporation, but now you can play like one!