Small businesses usually have minimal internal controls.  The main internal control is trust.  By the time the business owner realizes trust is broken it is usually too late for them to recover any of the theft.  The environment for employees with financial difficulties has increased.  Combine these two items together (trust and employee financial difficulties) and you get a ripe opportunity for fraud.
 
Business owners must understand the components of fraud: 

• Opportunity
• Need
• Rationalization

Business owners must understand what normal business transactions and employee behaviors look like in order to spot abnormal transactions to investigate.  The business owner must investigate abnormal transactions to determine intent (human error or intent to defraud).  As Dennis Dycus, CPA (an expert in fraud) stated "fraud and stupid often look exactly the same."
 
Good and ethical people can rationalize fraud.  An employee's need is usually financially motivated (spouse laid off of work, medical expenses, debt pressures, etc.).  The employee then usually rationalizes the fraud by stating to themselves that they will pay back the monies or they deserve it because they are underpaid, etc.
 
As the old saying goes "trust, but verify".  To learn more about the components of fraud and how to protect your small business, read the full article Believe it or Not You Have Been Had! 

Small businesses and individuals have less than 90 days (until December 31st) to plan for 2009 income tax consequences and plan for next years employee benefits.  Are you making the most of the tax regulations?  Call us to discuss how we can combine your goals and business strategy to create an efficient tax strategy for you.