On Saturday, November 26, 2022, customers across the nation may “Shop Small.” The “Shop Small” movement is a part of Small Business Saturday—a day to support and celebrate small businesses and the impact they have on their communities. American Express founded the day in 2010 “because shopping at a family-owned framing spot or buying a handmade ring from your favorite online small business helps to promote more vibrant communities.” In 2011, the U.S. Senate passed a resolution in support of Small Business Saturday.
Today, Small Business Saturday serves to kick off the holiday shopping season for the approximately 32 million small businesses that dot the map in the United States. According to the 2021 Small Business Saturday Consumer Insights Survey, U.S. consumers who shopped at independent stores and restaurants on Small Business Saturday spent an estimated $23.3 billion. But with that spending comes increased risks for small business owners.
According to the Association of Certified Fraud Examiners’ 2018 Report to the Nations, private companies and small businesses have more incidences of employee theft than large businesses. They also have greater losses—an annual median loss to fraud of $200,000.00 for small businesses compared to $104,000.00 for larger businesses. The most common types of fraud schemes in small businesses are:
- Billing Scheme
- Check Tampering
- Expense Reimbursements
According to Dr. Joseph T. Wells, CFE, CPA, and ACFE founder, “small businesses remain the most vulnerable to occupational fraud because of three factors: They are the least likely to have an audit, a hotline or adequate internal controls.” According to the ACFE’s statistics, 42% of fraud in small businesses was caused by lack of controls vs. 25% in larger businesses.
As a forensic and investigative accounting firm, SDC CPAs frequently handles claims involving small businesses. Its accountants have seen the devastating effects employee theft can have on small businesses. However, business owners can help to protect their organizations by shoring up their internal controls.
Business owners looking to implement safeguards can start by setting the “tone at the top.” This can help to build a strong foundation. Management and supervisors can encourage integrity by serving as examples, developing and discussing clear policies and procedures, and providing training. Discussions about loss prevention should be ongoing. Performing background checks before hiring can also help avoid future issues.
Business owners should segregate duties and each position should have a job description. No one individual should be responsible for bookkeeping, handling cash, and making deposits. Bank statements should be reconciled regularly. Inventory counts, if applicable, should be performed frequently.
Business owners also would be wise not to put their internal controls on autopilot. Monitoring and performing assessments can help determine if internal controls are working. Unscheduled spot checks of inventory, cash register checks, reconciling credit and cash sales, and performing bank reconciliations can help. Cross checks and evaluating processes may serve to pinpoint loopholes in the system. Conducting annual employee evaluations will also give owners feedback and is a good recordkeeping practice.
In addition to creating and maintaining strong internal controls, the ACFE recommends all businesses take the following precautions:
- Have a hotline that employees can call to report potential violations or concerns.
- Train employees in fraud prevention.
- Have regular internal audits to find violations and identify weaknesses.
As the holiday shopping season kicks into gear, small businesses can look to protect themselves. Implementing stronger internal controls can help to prevent or mitigate employee theft. After all, some say that the best offense is a good defense.
“Let’s Go Shop Small.” American Express. https://www.americanexpress.com/us/small-business/shop-small/about/. Last accessed November 14, 2022.
Mindley, Keisha. “The ‘Trusted’ Employee.” Fraud Magazine, January/February 2014. https://www.fraud-magazine.com/article.aspx?id=4294980868. Last accessed November 14, 2022.