Asset misappropriation in small businesses

Author:Jay P. Kennedy
Position:School of Criminal Justice, Michigan State University, East Lansing, Michigan, USA and Center for Anti-Counterfeiting and Product Protection, Michigan State University, East Lansing, Michigan, USA
Pages:369-383
SUMMARY

Purpose This paper aims to increase the understanding of the types of insider financial frauds that occur within small businesses by focusing on a sample of businesses that have not employed a certified fraud examiner (CFE) in response to employee theft. Design/methodology/approach The survey data analyzed come from 102 small businesses (100 employees or fewer) in a... (see full summary)

 
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Asset misappropriation in
small businesses
Jay P. Kennedy
School of Criminal Justice, Michigan State University, East Lansing,
Michigan, USA and Center for Anti-Counterfeiting and Product Protection,
Michigan State University, East Lansing, Michigan, USA
Abstract
Purpose This paper aims to increase the understandingof the types of insider nancial frauds that occur
within small businesses by focusing on a sample of businesses that have not employed a certied fraud
examiner(CFE) in response to employee theft.
Design/methodology/approach The survey data analyzed come from 102 small businesses (100
employeesor fewer) in a midsized Midwestern city in theUSA, and reect 125 reported employee thefts.
Findings The study results indicate that small businesses that do not hire a CFE report certain thefts
with greater and lower frequencies as compared to small businesses that do hire a CFE. For particular
types of frauds, CFEs may be no more useful than the efforts of business owners or managers, and other
employees.
Practical implications There may be important organizational differences between businesses that
hire CFEs and those that do not, differencesrelated to the ways in which business nances are maintained,
the ways in which specic controlsare used and the ability of employees to access business resources. These
factors may create business-based opportunity structures that make particular types of insider nancial
frauds moreor less likely to occur within a particular business.
Originality/value Existing researchon insider nancial frauds may not appropriately account for small
businesses thatcannot afford, or are unwilling, to hire a CFE. The ndings discussed in this paper contribute
to a more complete picture of the types of frauds that small businesses experience, as well as how these
businessesdeal with insider theft.
Keywords Small business, Employee theft, Financial frauds, Insider frauds
Paper type Research paper
1. Introduction
Employee theft can be one of the most devastating crimes committed against a business of
any size. These crimes are particularly distressing for small businesses because they create
greater nancial and operationalharms relative to the harms created by thefts that occur in
larger rms (Association of Certied Fraud Examiners, 2010,2012,2014, 2016). For
example, employee theft can signicantly affect a small businessability to pay current
employees, hire new employees, invest in new equipment and purchase needed materials
and services (Kennedy, 2014). In addition, when employee theft negatively affects business
operations, employee morale may suffer, outputs and quality can decline and revenue may
be lost (Payne and Gainey, 2004). These and other negative consequences can exacerbate
any nancial issues that result from insiderthefts.
According to the Association of Certied Fraud Examiners(2010,2012,2014, 2016)
(ACFE), biannual Report to the Nations, the most commonly occurring form of insider
nancial frauds is asset misappropriation. The ACFE data make it clear that small
businesses are routinelyand signicantly harmed by insider nancialfrauds, and that small
businesses suffer greater losses and are victimized more regularly than businesses of any
Asset
misappropriation
369
Journalof Financial Crime
Vol.25 No. 2, 2018
pp. 369-383
© Emerald Publishing Limited
1359-0790
DOI 10.1108/JFC-01-2017-0004
The current issue and full text archive of this journal is available on Emerald Insight at:
www.emeraldinsight.com/1359-0790.htm

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