High Cost of Theft and Fraud: Student's Name Institution Course Name Instructor's Name Date

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High Cost Of Theft And Fraud
Student's Name
Institution
Course Name
Instructor's Name
Date
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High Cost Of Theft And Fraud
Fraud is an event that may affect any business organization. Whereas not all fraud is
exposed in a business, detected fraud consume up to 5% of a business’s revenue. Small business
organizations are more exposed to fraud because they lack systems and policies to prevent,
detect, and recover fraudulent incidents (Hutton, 2019). Employees are the most involved in
fraudulent activities, this involvement can take the shape of different types of malpractices, the
most common type of malpractice is a misappropriation of assets. Internal control strategies such
as separation of duties, redundancy, and centralized processes, when properly implemented, can
increase profits in a business enterprise by reducing fraud and theft. (Molungu, 2019). When
implemented, internal controls discourage employees from committing fraudulent activities by
ensuring there is direct control to catch errors. An internal control such as redundancy will
ensure the requirement of additional evaluations before performing transactions. Centralized
processes implement monitoring and tracking mechanisms, therefore, discouraging fraud.
Separation of duties is the process where each employee is assigned a respective task, this
reduces the chance of fraud because each employee will have a hand in one specific task only
making it easy to track down an issue.
The ACFE “2016 Global Fraud Study” reported two key causes for some small
businesses experiencing cases of employee theft and fraud. These two reasons are a higher
degree of misplaced or assumed trust and lack of basic accounting controls (Bunn, Ethridge &
Crow, 2019). In most small business enterprises, multiple functions, e.g., financial transactions
are handled by a single employee. These individual employees control it all, making it easy for
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fraudulent activities easier to go undetected. The management relies on one person to makes
deposits, control the books, and perform other business functions. Much trust is placed on one
person such that if they get involved in fraudulent acts it won't be noticed. Small business
organizations are especially susceptible to fraud because they lack basic accounting controls, are
less likely to be audited, and tend to have a high level of trust for their employees. Lack of strong
internal financial controls makes it easy for fraudulent activities to happen. Unlike larger
business firms, small businesses lack hotlines for customers, suppliers, and employees to report
observed instances of theft and fraud.
A code of conduct lists a set of rules, norms, practices, and responsibilities that govern an
organization. A business must have a code of conduct document that defines all fraudulent
behaviour, and what are the repercussions of committing those acts. A code of conduct makes
employees understand why certain practices are inappropriate and the reasons why a business
organization expect good behavioural performance (Ivancevich & Konopaske, 2013). It is
difficult for any business organization to maintain ethical rules. Many businesses have several
layers of management, therefore creating a strong ethical rules policy is necessary since not all
people possess good business morals. Choosing to do the right can be expensive for some firms,
but the payoff is maintaining consumer value through maintaining the firm’s code of ethics. A
business should have a code of ethics handbook in place that sets out rules and expectation
against fraudulent activities for employees to understand the steps that will be taken when such
behaviours occur, this protects the organization from litigation processes.

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References
Bunn, E., Ethridge, J., & Crow, K. (2019). Fraud in small businesses: A preliminary study.
Hutton, L. W. (2019). Understanding the Effects of Internal Controls on Veteran-Owned Small
Businesses in Virginia (Doctoral dissertation, Capella University).
Ivancevich, J., & Konopaske, R. (2013).Human Resource Management, 12thEdition.McGraw-
Hill Irwin
Molungu, T. N. (2019). Internal Control Strategies to Mitigate Fraud in Small Manufacturing
Businesses in Cameroon.

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High Cost Of Theft And Fraud

High Cost Of Theft And Fraud

exposed in a business, detected fraud consume up to 5% of a business’s revenue. Small business

implemented, internal controls discourage employees from committing fraudulent activities by

ensure the requirement of additional evaluations before performing transactions. Centralized

processes implement monitoring and tracking mechanisms, therefore, discouraging fraud.

making it easy to track down an issue.

observed instances of theft and fraud.

organization expect good behavioural performance (Ivancevich & Konopaske, 2013). It is

behaviours occur, this protects the organization from litigation processes.

Hutton, L. W. (2019). Understanding the Effects of Internal Controls on Veteran-Owned Small

Businesses in Virginia (Doctoral dissertation, Capella University).

Ivancevich, J., & Konopaske, R. (2013).Human Resource Management, 12thEdition.McGraw-

Molungu, T. N. (2019). Internal Control Strategies to Mitigate Fraud in Small Manufacturing

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