Akademik Veri Yönetim Sistemi
EBES 10th Conference, İstanbul, Türkiye, 23 - 25 Mayıs 2013, ss.1-10
Fraud can be described as any
intentional deceit meant to deprive another person or party of their property
or their rights. As a society we are informed about frauds mainly by the large business’
liquidation process. As a result of such liquidation process many investors,
employees, creditors, owners; briefly, the economy suffers damage. Not only
large organizations but also small ones are under the risk of suffering from
fraud. The risk for small business is even higher than large ones because, small
businesses often have less ability to absorb potential losses incurred due to
fraud. Research demonstrates that there is significant negative correlation
between organizational size and amount of losses due to fraud. This poses a serious
problem for the economy since small businesses play a very important role in
employment and value creation. The main reasons of occupational fraud for small
business stem from inadequate internal control structure. Usually the number of
employees prohibits effective application of separation of duties, leading to a
single employee taking more responsibilities than he/she should. While such an
employee usually appears as trustworthy and owns all authorization, he/she also
becomes the most dangerous one. Combined with lack of auditing obligations,
code of ethics and expensive fraud prevention techniques make this type of small
businesses very vulnerable to fraud. Despite these factors, owners of small
businesses tend to underestimate the occurrence of any fraudulent activity in
their work place. Some of the fraudulent activities that may occur in the small
business are skimming, larceny, billing schemes, payroll schemes, check
tampering schemes, expense reimbursement schemes, misuse and theft of inventory
and other assets, corruption and financial statement fraud. The most common red
flags of such frauds are cash flow problems, personnel living beyond their means, and conflicts
with auditors. Prevention of these frauds mainly depends on creating the right
controls. The basic of these controls depend on the selection on the right
employee, creating a code of conduct and regularly informing the personnel about this
code and setting up policies and procedures that help to deter fraud. This
paper examines the occupational fraud from the perspective of small business, red
flags about such activities, and possible prevention methods.