RM2.047m, and 46 per cent of the respondents reported that their losses ranged between
RM10,001 and 100,000 (KPMG, 2013). Although these ﬁgures are just an approximation of
the losses incurred as some fraud scandals were not discovered, they clearly display how
fraud is harming businesses.
Fraud scandals do not only harm large companies but also affect small businesses.
According to ACFE (2012), the median loss incurred by small businesses was estimated at
$147,000, whereas the median loss for large organisations was $100,000. Besides ﬁnancial
losses, fraud impacts the reputation of the SME and the conﬁdentiality of its stakeholders
(customers, shareholders, creditors, etc.). In addition, fraud represents one of the reasons
SMEs fail in strategic activities, and in extreme cases, it may put thewhole company out of
business. For instance, an entrepreneur may spot a good business idea to launch a new
venture and establish his or her business plan with the assumption that his strategies will
move smoothly. However, if there is a failure to undertake preventive measures against
fraud, the business may not succeed. Finally,when fraud becomes a cost of doing business,
it will put SMEs at a competitive disadvantage(Adams et al., 2006).
In Malaysia, as in most developing countries, SMEs are considered the top contributors
to the economy. According to SMECorp Malaysia (2013),SMEs account for 97.3 per cent of
the ﬁrms established in the country. As a result, they represent the major employer in the
country and the primary contributor to the country’s GDP. SMEs could perform better and
expect to compete internationally if they were able to avoid the hurdles threatening their
sustainability. KPMG (2013) found that nearly 50 per cent of fraud scandals reported in its
survey occurred in small and medium size enterprises. This high incidence might be owing
to low application of anti-fraudpolicies compared to large organisations or to the negligence
of anti-fraud policies and procedures by SME owners and managers (Laufer, 2011;ACFE,
2012). In addition, the occurrence of fraud in SMEs could be because of less commitment
given by the practitionersand researchers on fraud issues in SMEs. Because of the disparity
of resources existing between largeand small businesses, it is difﬁcult to recommend SMEs
to fully apply the fraud prevention measures that result from studies mainly conducted on
large companies. Therefore, it is important to conduct more research that focus mainly on
fraud preventionmeasure in SMEs and this study represent one of these efforts.
In view of the magnitude of the adverse effects of fraud on businesses, especially in
SMEs, proactive measuresneed to be taken against this phenomenon. Failure to considerthe
issue of fraud in SMEs will severely affect their performance. Ultimately, because of the
actual weight of SMEs in the economy of emerging countries, the failure of the SMEs may
jeopardise the economy of theirhome countries (Shanmugam et al., 2012). Hence, this study
was conducted to overcome thelimitation of previous studies that has overlooked thefraud
issues in small businesses, andit aims to assess the degree of existence of fraud prevention
measures in SEMs speciﬁcally in non-western context like Malaysia. Moreover, this study
suggests effectivefraud prevention measures for small businesses owners and managers.
The remainder of this article is organised as follows. In the second section, previous
studies on fraud prevention and detection are reviewed, along with examples of fraud
ﬁghting methods. In the third section,the research design is discussed. In the fourth section,
the ﬁndings of the study are presented, and in the ﬁnal section, the conclusion and
recommendationsof the study are covered.
2. Motivation of study
According to Shanmugam et al. (2012), SMEs in Malaysia are more likely to be subject to
fraudulent activities by its workforce and less capable of bearing its negative
consequences compared to giant organisations. Although this problem is present in