David Mayfield
Oct 27, 2025
For small businesses, preventing asset misappropriation is crucial to protect against risks that could lead to significant financial loss. According to a 2024 study, asset misappropriation accounts for approximately 89% of occupational fraud cases with an average cost of about $120,000 per case. These costs include not only the investigation and recovery costs but operational disruptions and increased insurance premiums.
Small businesses can be particularly vulnerable to fraud because they lack the resources that larger companies have to invest in comprehensive security measures.
Here are some Fraud Prevention Tips tailored for small businesses:
1. Segregation of Duties
A. Do not let one person control all financial activities.
B. Split responsibilities among employees. The same person processing transactions should not be reconciling the accounts.
2. Regularly Reconcile Bank Accounts
A. This will help ensure that any discrepancies or unauthorized transactions are caught early.
3. Limit Access to Financial Accounts
A. Restrict access to financial accounts and systems to only those employees who need it.
B. Use role-based access controls in accounting and banking software.
4. Monitor Transactions and Set up Alerts
A. Set up alerts for large or unusual transactions.
B. Analyze financial statements and accounting data to compare results to historical and/or expected amounts.
5. Educate Employees on Fraud Risks
A. Conduct regular training on recognizing fraudulent activities such as fake invoices and identity theft.
6. Develop a Vendor Verification Process
A. Verify new vendors and suppliers before making payments. Do not trust emails or contact details provided in the first communication; call the vendors’ official number and confirm bank account details.
B. Verify changes to a vendor account by calling the vendor back at their official number to confirm.
7. Use Secure and Trusted Technology
A. Update software regularly.
B. Invest in antivirus, anti-malware programs, and firewalls to prevent cyberattacks.
C. Encrypt sensitive financial data.
8. Protect Employee Payroll
A. Ensure the payroll system is secure, and access is restricted.
B. Conduct regular inspections to ensure that there are no ghost employees or unauthorized salary increases.
C. Verify changes to direct deposit information directly with the employee.
9. Review and Verify Vendor Invoices
A. Use approval workflows for payments and purchases to ensure multiple levels of oversight by the appropriate personnel before making payments.
B. Verify invoices before payment, looking for inconsistencies, duplicate invoices, or amounts that do not match.
10. Review Fixed Assets
A. Periodically verify the existence of fixed assets. Tools and small equipment can disappear very easily.
Many of these items are difficult for a small business due to limited resources. It is tough to segregate duties when there are only a few people on the administrative and accounting team, or when you don’t want to expose other employees to payroll details. Utilize the services of your CPA to assist with these functions. Their accounting services department can help with segregation of duties, account reconciliations, employee education, and payroll monitoring, and can become a valued member of your team. Utilizing their knowledge and experience in these areas will help significantly reduce your exposure to asset misappropriation.