With the economy spiraling downward, business closures increasing and unemployment on the rise, the frequency of fraud against small businesses is skyrocketing. Unfortunately, law enforcement does not have the manpower to deal with many small business fraud issues. During the 90’s, for instance, the FBI increased its white-collar criminal investigation program identifying business fraud as a major national priority. But, however, they only have been able to assign their special agents to the larger dollar losses involving antitrust violations, bankruptcy fraud, computer crime, financial institution crime, healthcare fraud, large scheme insurance fraud, money laundering, public corruption, securities fraud, telemarketing fraud, etc. The FBI, other federal investigators and federal prosecutors have had not choice but to set minimum loss requirements before assigning investigators to investigate fraud and before prosecuting the thieves. The greater majority of business fraud matters occur in businesses with 500 or fewer employees. The investigation of these crimes has fallen on the shoulders of state and local law enforcement, states attorney general, county prosecutors and state and local regulatory agencies. Given the volume and the outcome (probation in many cases) this process is not an effective deterrent. The responsibility for detection and effective deterrence falls on the shoulders of small business owners and their key managers.
What Should you Do?
First and foremost, screen all new employees. Additionally, employ effective checks and balances by segregating duties, eliminating internal control weaknesses and instituting an effective detection process. Once the business owner detects fraud (and if in business for any length of time, a theft of one kind or another will occur) employ a zero-tolerance policy by prosecuting the fraudster.
Secrets to Success
When fraud is identified, business owners must remain emotionally detached. If at all possible, do not disclose your awareness to others. Instead, consult with a business attorney and a qualified private detective to understand your options both civilly and criminally. Fraud is an act defined as illegal by Michigan law. An employee, a customer, a vendor or any other person connected with or to a business who commits fraud has committed a criminal act against that business. Many times employees who embezzle a small amount of money in any one of a variety of ways look at the fraudulent act as something which is non-criminal and is rightfully due them. This is wrong thinking, and the business owner needs to remember that and to employ a zero-tolerance policy.
Since September 11, 2001, there has been more awareness raised as to how easy it is to forge and illegally produce documents, checks, bank statements, invoices, etc. In recent years, it has become easier to obtain or reproduce phony driver’s licenses and other documents, and it has become easier to forge documents by cutting and pasting, placing a known signature on a document by scanning and tracing known signatures on bogus documents, and simply copying a model signature by positioning it next to the document being forged. Forgery is still an old fashion method of obtaining something of value by using a false pretense.
The Bottom Line
The business owner is in the best position to deter and defend against fraud. He or she should communicate to all employees that fraud will not be tolerated and most importantly, the owner should lead by example!
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