Page 30 - Internal Auditor Middle East - December 2017

Fraud Risk

By: Mohammed Jallad Edited By: Raymon Helaly
Tips to Avoid Fraud in Small Enterprises

According to the results of the study which was prepared by the
Association of Certified Fraud Examiners (“ACFE”) and issued in
2014, enterprises with fewer than 100 employees were more likely
to have fraud cases reported to the ACFE. The total losses from
fraud in large enterprises were slightly higher than the total losses
of small enterprises as shown in the following diagram:

The following are the top 9 points to be discussed with
management in SMEs:
According to the ACFE’s studies, the most common types of fraud
include: 1. Accounting duties and cash transactions shall not be assigned to
• Theft of cash; one employee:
• Claiming fictitious charges; and For the small size of enterprises and few transactions carried
• Theft of assets. out therein, only one employee is usually assigned to register
the accounting transactions, receive cash from customers,
The main reason for thefts in small and medium-sized enterprises deposit same in banks and make transfers among the various
accounts of the enterprise. Assigning one person to perform
is due to the employees by themselves, as, by virtue of the nature these duties increases the possibility of fraud or theft, and the
of their work, the trust among employees increases and the control management cannot easily detect such theft or fraud. It is therefore
and accounting factor becomes weaker on the basis that they are recommended that there should be at least two different people,
members of a single family. one of whom shall be assigned to register while the other person
What makes enterprises vulnerable to fraud? shall be assigned to withdraw, deposit and transfer.
If the cost of employing more than one person to perform these
There are many factors that help make enterprises vulnerable to tasks is high for the enterprise, it may be advisable to contract
fraud, including but not limited to: with an independent accounting office to carry out accounting
• Lack of adopted policies and procedures that leads to transactions on behalf of the enterprise, ensuring proper
opportunities for fraud. segregation of duties.
• The same employee performs several tasks, which helps them 2. Ensuring that staff is well known to the Management:
hide their illegal activities. Because of the small size of the enterprise, the few number of staff
• Over time, employees become like a single family and controls who has existed since the establishment of the enterprise for a
over their activities become lesser due to trust. period that may extend for several years, the employer may feel
• Lack of awareness and experience of staff in detecting fraud. embarrassed over time to investigate the information and facts
about his staff, and may easily appoint some employees who have
How can enterprises get help to overcome this phenomenon? relations with current employees that are trusted by him. It is
worth noting the all employees’ circumstances, previous history in
Internal auditors are responsible for informing their clients about work and daily life shall be well known. With little time and effort
the risks of fraud and how to avoid them and mitigate their effect in performing background check of employees, the enterprise may
in order to avoid losses arising therefrom. save a lot of money that could be wasted in case of any fraud.

28 INTERNAL AUDITOR - MIDDLE EAST DECEMBER 2017