Internal Control/Anti-Fraud Program Design for the Small Business: A Guide for Companies NOT Subject to the Sarbanes-Oxley Act

Preface: Maybe It’s Time We Get Back to the Basics

LARRY WAS THE CHIEF FINANCIAL OFFICER for a company with annual revenues of $75 million. He worked his way up through the company over a period of 10 years to attain this prestigious position. Unfortunately, external financial pressures in his life led him down the path of compromise and ultimately to prison. As his struggles intensified, Larry rationalized that he would only “borrow” the money from the company; he would, of course, pay it back once he got past these financial pressures. “I’m not committing fraud. I’m not stealing. I’m just borrowing,” he constantly told himself. Since Larry had risen through the ranks over a long period, his superiors trusted him. Because of their level of trust, Larry was virtually unaccountable to the system of checks and balances that existed over the disbursement process. By the time the fraud was discovered, Larry had misappropriated over $1.3 million from his employer through a simple disbursement fraud scheme.

Larry’s story is true. It is based on only one of my numerous experiences investigating fraud cases over the span of 30 years. Sadly, this same story occurs often in today’s business environment. Fraud has become too easy, too frequent, and too costly for the small business community. If we consider the fact that in the United States fraud costs approximately $5 to $6 billion annually, we begin to understand that occupational fraud, or internal fraud, is not a small problem. So ...