Is Fraud Inoculation Possible for a Small Business Firm?

Part 1 of 10

Definitions and Challenges

If by inoculation, one means 100% fraud prevention in the future, then the short answer is no. Webster’s dictionary definition of fraud includes the following two sentences, “No definitive and invariable rule can be laid down as a general rule in defining fraud, as it includes surprise, trickery, cunning, and unfair ways in which another is cheated. The only boundaries defining it are those which limit human knavery.”

This means that new ways to commit fraud are yet to be invented, and no serious person would ever claim to be able to prevent all future instances of fraud in a multiple-person small business. The more interesting question might be, “can essentially all material fraud be prevented, and if so, how?” Response to this question will be considered, analyzed, discussed and explained in detail.

For example, if the word ‘material’ is defined to be plus or minus one-half of 1%, then in a small business with annual revenues of $2 million, ‘material fraud’ equals $10,000. Therefore, perhaps the important question to consider is, “Is it possible to prevent material fraud (of $10,000 or more, annually) in a small business, and if so, how?”

In effect, the best way to minimize the likelihood and the size of future fraud is to come as close as possible to balancing cash daily. In this ten-part series, we will show how to do this, assuming that the owner keeps that cash balance in his or her head every day. Though the task may sound daunting, it is not, if one has the proper motivation.

End Part 1 of 10

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