Big Frauds Start Small

If I told you that all big frauds started small, would you believe me? Would think it’s only obvious that a big fraud has to start somewhere? Or would you assume that one day a grand scheme was hatched and executed?

The truth is that almost all fraud schemes started very small. They didn’t start at headline-grabbing proportions. They started somewhere much smaller, maybe to cover up a bad quarter or to siphon off a little cash to pay a bill. A fraud may start as an error that wasn’t caught by the accounting system or a small-time theft that wasn’t noticed. There are any of a number of ways for fraud to start very small.

Why is this important? Well if big frauds start small, then shouldn’t companies be more concerned with stopping small frauds? I see so many owners and executives who are willing to ignore small frauds like expense report abuse or bumping up sales figures a little.

If these small frauds are almost certain to lead to bigger frauds, then it makes sense to stop the small ones. Don’t allow employees to exploit the system. Put oversights in place so that the work of employees is checked and verified by others. Make sure that manipulations are caught early and dealt with immediately.

When a small fraud is detected, management must deal with it swiftly. Employees must be made aware that this fraud, even if it is small, is not condoned or tolerated. It might not seem cost-effective in the short term to go after these small frauds, but the long term impact of doing so can be huge.

Stop fraud dead in its tracks before it can grow. Make small frauds a priority and follow through on them to stop them from becoming big frauds.


Tracy L. Coenen, CPA, MBA, CFE performs performs fraud examinations and financial investigations for her company Sequence Inc. Forensic Accounting, and is the author of Essentials of Corporate Fraud.