Fraud, Security, and Controls in Small Businesses: A Proposed Research Agenda

Abstract

            Fraud and security issues are significant problems faced by businesses. Based on a survey of certified fraud examiners reported in the 2016 ACFE Report to the Nations, total annual loses of all businesses exceeded six billion dollars with an average per case loss just under three million dollars. Small businesses, defined as those with less than 100 employees, reported median fraud losses that were virtually identical to the losses of large businesses. However, given the relative magnitude of assets for these two sizes of businesses, the fraud losses for small businesses have a much bigger impact on small businesses than on large ones. Given the importance of fraud loses to small businesses, fraud, security, and compliance issues are discussed within this context at a conceptual level along with a proposed research agenda.

            The presented discussion is framed within the special problems, issues, and potential solutions to fraud and compliance in small businesses. We begin with security and compliance issues faced by all businesses. The essence is that the security and compliance solutions (e.g., software) suitable for large businesses are often inappropriate for small businesses. Based on these results, recommendations for small business controls are offered. These recommendations are structured into three sections, understanding the small business control environment, developing internal controls, and security and compliance software for small businesses. In each of these sections, techniques specific to small businesses are presented. After discussing the need to perform additional research in this area, a research agenda is proposed. The specific topics of identifying the target population, methods of fully understanding the target population, data collection and analysis, and potential manuscripts are presented. A brief summary of the paper is then provided.