Asset misappropriation in small businesses
Published date | 08 May 2018 |
Date | 08 May 2018 |
Pages | 369-383 |
DOI | https://doi.org/10.1108/JFC-01-2017-0004 |
Author | Jay P. Kennedy |
Subject Matter | Accounting & Finance,Financial risk/company failure,Financial crime |
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 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
employeesor fewer) in a midsized Midwestern city in theUSA, and reflect 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 finances are maintained,
the ways in which specific 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 financial
frauds moreor less likely to occur within a particular business.
Originality/value –Existing researchon insider financial frauds may not appropriately account for small
businesses thatcannot afford, or are unwilling, to hire a CFE. The findings 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 financial and operationalharms relative to the harms created by thefts that occur in
larger firms (Association of Certified Fraud Examiners, 2010,2012,2014, 2016). For
example, employee theft can significantly affect a small business’ability 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 financial issues that result from insiderthefts.
According to the Association of Certified Fraud Examiners’(2010,2012,2014, 2016)
(ACFE), biannual Report to the Nations, the most commonly occurring form of insider
financial frauds is asset misappropriation. The ACFE data make it clear that small
businesses are routinelyand significantly harmed by insider financialfrauds, 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
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