Fraud poses a significant threat to businesses of all sizes, but small businesses are particularly vulnerable due to their limited resources and sometimes less sophisticated internal controls. The Association of Certified Fraud Examiners (ACFE) found in their 2024 Report that businesses with fewer than 100 employees had an annual median loss to fraud of $141,000 while businesses with more than 1,000 employees had a median loss of only $102,000. A major reason for this is that smaller businesses don’t have the same controls and procedures in place to protect themselves.

The first step to protecting your company is understanding the common types of fraud targeting small businesses. Here are five major kinds of fraud experienced by small businesses as well as some strategies to keep your company safe:

Phishing and Cyber Fraud

Phishing attacks target small businesses through deceptive emails, texts, or phone calls designed to trick employees into revealing sensitive information such as login credentials or even financial data. Cyber fraudsters may also use malware to compromise business systems and steal data or commit financial fraud. To protect against phishing and cyber fraud:

Educate your staff about the dangers of phishing attacks and provide training on how to recognize and report suspicious emails or messages.
Implement cybersecurity measures such as firewalls, antivirus software, and encryption to protect against malware and unauthorized access.
Regularly update software and systems to patch known vulnerabilities and reduce the risk of exploitation by cybercriminals.

Payment Fraud

Payment fraud involves criminals using counterfeit or stolen checks, credit cards, or online payment accounts to make unauthorized purchases or withdrawals. Small businesses are often targeted because they may have less stringent verification processes in place. To prevent check and credit card fraud:

Verify customer identity by requesting photo identification for large transactions or purchases made with checks or credit cards.
Use secure payment processing systems that encrypt sensitive cardholder data and comply with Payment Card Industry Data Security Standards (PCI DSS).
Train employees to recognize common signs of fraudulent transactions, such as unusual purchasing patterns or mismatched signatures.

Identity Theft

Identity theft occurs when criminals steal personal or financial information to impersonate individuals or businesses for fraudulent purposes. This can involve opening fraudulent accounts, applying for loans or credit cards, or filing false tax returns. To safeguard against identity theft:

Limit collection and retention of sensitive customer information to minimize the risk of data breaches.
Securely store and dispose of physical and electronic records containing personal or financial data, such as shredding documents and using encryption for digital files.
Monitor credit reports and bank statements regularly for suspicious activity and report any unauthorized transactions or accounts to the appropriate authorities.

Billing Fraud

Billing fraud occurs when external parties or even employees manipulate billing processes to siphon off funds from the business. This can involve creating fictitious invoices, altering existing invoices, or redirecting payments to personal accounts. To combat billing fraud:

Segregate duties to ensure that different individuals are responsible for creating, approving, and paying invoices.
Conduct regular reviews of vendor accounts and invoices to detect any irregularities.
Use accounting software with built-in controls such as approval workflows and audit trails to monitor billing activities.

Employee Theft

Employee theft involves employees misappropriating company assets for personal gain. This could include stealing cash or inventory, but could also mean using intellectual property or engaging in fraudulent expense reimbursement schemes. To mitigate the risk of employee theft:

Screen job candidates thoroughly before hiring and conduct background checks, especially for positions involving access to sensitive financial information.
Implement clear policies and procedures regarding acceptable use of company resources and conduct regular training sessions to reinforce ethical behavior.
Keep track of inventory using surveillance cameras, access controls, and periodic inventory checks.
Restrict access to sensitive information and intellectual property such as trade secrets

By understanding what kinds of fraud can occur and implementing controls and proactive measures to prevent and detect fraudulent activity, businesses can minimize their risk exposure and protect their assets. If you need help creating controls and organizing your accounting systems to help detect and prevent fraud, the team at Brightleaf Consulting Group has over 20 years of experience in putting accounting controls in place for small businesses of all types. Reach out and let us help keep your company on track.

- John Thrush

Happy New Year! The holiday season is officially over and it’s time to get moving again! Here are a few suggestions to get things moving in January.

Reconnect with people

There were almost certainly people with whom you couldn’t connect last year because your schedules didn’t line up. This includes existing or potential customers and clients, existing or potential partners, vendors, suppliers, etc. And yes, people are going to be busy catching up, but now is the time to get on their calendars if you aren’t already. Make a list of all the people that you tried to contact and then reach out to schedule a time to talk or even meet in person. It may be a bit harder to remember the people who tried to contact you when you didn’t have time to speak, but you can always look through the call list on your phone or check your emails. You may be surprised to see who you forgot!

Set Your Goals For The Year

If you don’t have goals for your company, it’s like getting into the car without selecting a destination first. Think of goals as the direction. How quickly you reach the destination depends on the speed and effort you apply to that direction.

Try to stick to goals you expect to achieve this year. It’s good to have multiple short term goals so you can show forward momentum and stay positive. Reaching a certain revenue number or completing a certification course by a certain date are a few examples. It may also help to build better work habits by setting recurring goals like responding to all emails or phone calls within a certain period of time.

Real long term goals may take years to reach, so it’s a good idea to start with your ultimate goal and work backwards to set those smaller goals. Back to the car analogy, these smaller goals become stops on the map to the final destination. And, just like a map, there are multiple ways to get to the same place. If you find one of those goals isn’t going to be possible, think about a different goal on a different path that could get you to the same place.

If you need help setting goals, the SMART system created by George Doran, Arthur Miller and James Cunningham is a time-tested system that’s proven extremely useful. This acronym stands for Specific, Measurable, Achievable, Relevant, and Time-Bound. If you’ve never used it before, it’s worth reading about more to use it more effectively.

Focus your team

It’s easy to get bogged down in your own tasks as a manager and to forget that your team is relying upon you to not only manage the company, but to lead them as individuals and as a team. Being a leader isn’t easy, but it can be made easier when your team knows what they have to do and why what they do is important. This also helps them realize why they are important to the company and to each other as a team. This clarity will help both you and your team to focus their efforts and improve results.

Among the first things to focus the team upon is understanding the company goals. Again, if everyone knows the intended destination, they have a better understanding of what is required to get there. One way that can help is to have the team work together to develop the goals. How this is implemented depends on the size of the company… whereas a small company may involve many of the employees, a larger company may only have key leaders involved.

Another item to help focus will be establishing how to communicate more effectively with each other. Whereas some companies and employees are effective verbally, it’s very difficult to hold people accountable for conversations alone. Conversely, because email can get overwhelming, it’s very difficult to communicate everything over email. When you add in texting and instant messaging or other channels, a lot of communications can get lost in the shuffle. Ultimately it may require combinations of things: if a text or meeting is used to communicate an objective, it may be followed up with an email to document what was communicated and/or a calendar notice to set a due date for a deliverable. Another option is to use project management software (e.g., Nifty, Trello, or Clickup) that helps to improve team communication and keeping on schedule. This can have a learning curve to work effectively, but can work wonders when used correctly.

Create A List Of Answers To Seek

To stay competitive requires understanding your company as well as its place in the market and industry. This means understanding your customers’ changing needs and buying habits, general consumer trends, what new advancements are expected, changes in regulations that may require changing your offerings or how business is done, and hundreds of other details that you can’t possibly have the time or ability to research without giving up on your other responsibilities. So what do you do?

Instead of spending the time answering every question you have, first determine what answers you need to know to remain competitive. From there, figure out what questions you can ask to get those answers. Some questions are easy to figure out: if you need to know how many items to order, you should ask how many you think you will sell. Other answers may require a lot of questions: knowing customer trends that affect your business may require asking if people are buying mostly online or in-person, what is popular, what is outdated, are changes seasonal or annual, and any number of questions.

Once you have these questions listed, consider which of them can be delegated to your team. Some may be quick tasks while others may turn into full projects.

Commit to learning

Many of the most respected business leaders are successful for being in the right place and doing the right thing at the right time. Part of that may be luck, but more often than not it’s because they knew where to be and what to do before they got there. How they knew is because they got informed. More often than not, this means reading or otherwise consuming that information.

Reading the news is generally a good idea; however, it’s also worth checking if the source is reliable, especially if it’s online. Fortunately, search engines make it easy to do this and compare them with each other when something sounds off. It’s generally a good practice to read multiple sources about the same topics to stay level headed.

There are a number of good sources for current business information (e.g., The Economist, Business Week, Forbes, Entrepreneur, Inc.). These are great sources for a variety of information; however, if you’re in a specialized industry, there are likely industry publications or websites that provide more curated news or other content for that industry. And while many of these provide some articles for free, you may want to invest in a subscription to one or two if you find yourself returning to it more often.

If you need to really focus on a subject, books are probably the best option to learn a great deal in the least amount of time. A few books that have information that can help people learn more about how to be more effective at work and in life are:

Can you think of some books that you’ve found useful for your business or for life in general? Who do you think would benefit most from them?