Companies with fewer than 100 employees often find it difficult to implement appropriate fraud prevention and detection techniques. The Association of Certified Fraud Examiners (ACFE), in its Report to the Nations on Occupational Fraud and Abuse (2012 issue available here), has consistently reported through the years that small businesses are more susceptible to and adversely impacted by fraud than other businesses and organizations.
Asset misappropriation and theft of company assets can be committed by businesses’ own employees. Vendors and customers also can be involved, but small businesses often possess limited resources to combat this problem.
To assist small business managers and the CPAs who serve them, the authors have designed a fraud risk self-assessment tool. This tool is simple to administer and can be prepared by CPA firms in an interview with their clients or given directly to their clients for completion. This tool can be an important value-added service to clients. CPAs who interact regularly with their clients and listen to their concerns will find opportunities to assist companies in improving their operations and mitigating the risk of fraud.
Click here to download the fraud risk self-assessment tool as a PDF
Several sources were used to develop the questions on the self-assessment tool and the relative scoring. The ACFE has published a Small Business Checklist. Additionally, the authors’ professional work experience was used to develop the questions and the scoring on the self-assessment tool.
After completing the questions and assigning the points on the self-assessment, a company or a CPA can tally the score to determine whether controls appear to be designed in a manner that will help prevent fraud or whether processes need to be reviewed and modified to improve controls. If the company scores greater than 50 points, internal controls appear strong, and fraud risks are minimal. Of course, this is only a guide, so there is no guarantee that the company is fraud-free. But the risk of fraud occurring would appear to be lessened. If the company scores between 10 and 49 on the assessment, improvement of controls is warranted.
The lower the score on the assessment, the higher the likelihood that the company could experience fraud or have an increased risk of fraud. If the company’s score is 9 points or less (including a negative score), the risk of fraud is high.
Small businesses often possess limited resources for preventing and detecting fraud. CPAs who serve small business owners can use this self-assessment tool to help the businesses determine whether their controls are appropriately designed to help combat fraud.
As a value-added service, CPAs can use this tool to evaluate their small business clients’ controls. CPAs also can give small business owners the tool so they can conduct the assessment on their own.
The self-assessment tool is only a guide. There is no guarantee that fraud will not occur even at a business that earns a high score on the tool.
The tool can help small business owners target specific methods for beefing up their fraud detection and prevention practices.
Valerie Trott Williams ( email@example.com ) is an assistant professor of accounting at the Palumbo Donahue School of Business at Duquesne University in Pittsburgh. Robert J. Kollar ( firstname.lastname@example.org ) is an assistant professor of accounting and directs the Master of Accountancy Program at the Palumbo Donahue School of Business at Duquesne University.
To comment on this article or to suggest an idea for another article, contact Ken Tysiac, senior editor, at email@example.com or 919-402-2112.
- “What’s Your Fraud IQ?” Dec. 2012, page 42
- “Small Businesses, Big Risk,” Aug. 2012, page 38
- “Client Tax Fraud and the CPA,” Aug. 2011, page 24
- “Guard Against Cybertheft,” Oct. 2010, page 42
- AICPA Audit Risk Assessment Tool and Guide (#WRA-XX, online subscription; #AAGRAS12P, paperback; and #AAGRAS12E, ebook)
- Common Fraud: A Guide to Thwarting the Top Ten Schemes (#PPM1202P, paperback; and #PPM1202E, ebook)
- Managing the Business Risk of Fraud: A Practical Guide
- Small Business Accounting and Auditing Update (2012–2013 edition) (#733016)
- Small Business Audit, Compilation and Review Update (#734524)
- The Top Ten Fraud Schemes: How to Detect and Prevent Them (#741200)
Forensic & Valuation Services Conference, Nov. 10–12, Las Vegas
For more information or to make a purchase or register, go to cpa2biz.com or call the Institute at 888-777-7077. For more fraud resources, go to cpa2biz.com/fraud.