Fraud, composed primarily of white-collar crimes, consumes an estimated $400 billion dollars in business losses each year. At the level of individual firms, small and large firms have a nearly identical average loss, right at $120,000 each. A loss of this magnitude is extremely difficult for a small firm to withstand and survive.
The key to preventing fraud from occurring in a firm is to develop a climate of ethical behavior. The steps in creating an ethical climate of behavior, as laid out in the Carland's text, begin with:
Instituting a proactive fraud policy
Leaders and managers must lead by example. This includes treating suppliers and customers ethically. Incidents of unethical behavior must be recognized and dealt with, and not allowed to slide by. Loss of peer respect is a powerful deterrent, especially in small firms where more formal internal controls may not be present.
New situations, or exceptions not spelled out in company policy, must be treated and evaluated fairly and this must be done in as transparent a manner as possible
Screening of prospective employees is vital. In the current legal climate, recommendations or warnings from former employers are all but impossible to obtain. Other options such as credit checks and professional, thorough interview techniques are more valuable.
Finally, fair wages are essential to finding and keeping good, decent employees. If the employees are able to make a decent living, they are much less likely to resort to fraudulent behavior.
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