Business scams or fraud take many different forms and can be perpetrated by people within the organizations (the small business owner, employees) and those outside it (e.g. suppliers, customers). According to PwC’s 2011 Global Economic Crime Survey (PricewaterhouseCoopers), in South Africa, economic crimes are committed equally by internal and external perpetrators.
Small business owners, therefore, cannot afford to be too trusting of anyone, as the financial losses and reputational damage caused by scams can be fatal or take years to overcome.
Examples of scams small business owners may encounter include:
• Employees skimming cash from petty cash or the cash till; employees writing cheques to cover their own bills instead of paying suppliers; when employees quit or are fired, the human resources manager leaves their payroll accounts open and diverts payments to himself (e.g. by changing employees’ direct deposit details).
• Overpayment – Customers buy goods or services using false banking details, and then request a refund of the amount they have ‘mistakenly overpaid’.
• False invoices – Existing suppliers (or parties claiming to act on their behalf) submit invoices for goods or services which you did not order, did not receive, or which are different to what you ordered.
• False business opportunities – Small business owners are approached about seemingly lucrative business opportunities and are requested to deposit money to get started. In South Africa, small business owners may fall victim to variations of the above, or other scams unique to the industry or regions in which the business operates. Given the creativity and sophistication of thieves and con artists, small business owners should stay informed about the latest scams doing the rounds.
This can be done by consulting other business owners (including Business Against Crime), banks, and local police stations. According to the Association of Certified Fraud Examiner’s 2010 Global Fraud Study (Association of Certified Fraud Examiner’s) small businesses are particularly vulnerable to fraud because they do not have internal controls in place, and because of a lack of management review.
The most effective method for small business owners to protect themselves is by playing a more active, hands-on role. For instance, small business owners can educate employees at all levels about fraud, how to detect it, and what to do about it; even where financial management has been delegated to a bookkeeper, the small business owner should thoroughly and frequently review all statements and transactions; finally small business owners can ensure that their insurance policies provide some level of cover for fraud.