Why We Often Don't Hear About Fraud in Small and Medium-Sized Businesses — Even Though It Happens All the Time
- Michael Blevins
- May 8
- 2 min read
Updated: 7 days ago
Fraud is a pervasive issue that affects businesses of all sizes. However, incidents involving small and medium-sized enterprises (SMEs) often go unreported or unnoticed. This lack of visibility can be attributed to several factors, including concerns over reputational damage, limited resources for detection, and the absence of robust internal controls.
Why Fraud in SMEs Often Goes Unreported
Reputational Damage: SMEs may fear that disclosing fraud could erode customer trust, deter investors, or provide competitors with an advantage.
Resource Constraints: Unlike larger corporations, SMEs might lack dedicated compliance departments or the financial means to implement comprehensive fraud detection systems.
Internal Relationships: In closely-knit organizations, fraudulent activities might be perpetrated by trusted employees, making detection and reporting more challenging due to personal relationships.
Recent Examples of Fraud in California SMEs
To illustrate the prevalence of fraud in SMEs, here are three notable cases from California within the past year:
Bitwise Industries (Fresno, CA): Co-founders Irma Olguin Jr. and Jake Soberal were sentenced to 9 and 11 years in federal prison, respectively, after pleading guilty to wire fraud and conspiracy charges. They admitted to defrauding investors of over $100 million by misrepresenting the company's financial health and operations.
GameOn (San Francisco, CA): Former CEO Alexander Beckman and his wife Valerie were indicted on multiple counts, including wire fraud and securities fraud. They allegedly deceived investors by fabricating revenue figures, bank statements, and customer relationships, raising over $60 million under false pretenses.
Mark Roy Anderson (Beverly Hills, CA): A disbarred attorney, Anderson was sentenced to 25 years in prison for orchestrating a CBD scam that defrauded investors of nearly $18.8 million. He falsely claimed to operate hemp farms and sell CBD-infused products, using the funds for personal luxuries instead.
The Role of Fraud Examiners in Mitigating Risks
Engaging a Certified Fraud Examiner (CFE) can be instrumental in preventing and detecting fraudulent activities within SMEs. CFEs bring specialized expertise to:
Conduct Risk Assessments: Identify vulnerabilities in financial systems and operational processes.
Implement Internal Controls: Establish checks and balances to deter fraudulent behavior.
Train Staff: Educate employees on recognizing and reporting suspicious activities.
Investigate Allegations: Carry out thorough investigations when fraud is suspected, ensuring evidence is collected appropriately for potential legal proceedings.
Conclusion
While fraud in SMEs may not always make headlines, its impact can be devastating. Proactive measures, including the engagement of fraud examination professionals, are essential in safeguarding businesses against such threats. Transparency, robust internal controls, and a culture of accountability can significantly reduce the risk of fraud and its associated consequences.
If you're interested in learning more about how a Certified Fraud Examiner can assist your business, feel free to reach out to us at Blevins Associates Consulting.
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