What Business Owners Should Understand About Fraud Risk

At a Glance

Fraud risk is rising as businesses adopt new systems, expand digital payments, outsource functions, and operate with remote or hybrid workforces. While management is responsible for preventing and detecting fraud, CPAs play an important advisory role by helping business owners understand common risks, the limitations of various services, and opportunities to strengthen existing practices. This guide outlines common fraud schemes, how fraud is often uncovered, and how CPAs can serve as a resource as organizations evaluate and respond to fraud risk.

Contents

1. The Growing Importance of Fraud Prevention
2. Understanding the Schemes Most Likely to Affect Your Business
3. How Fraud Typically Comes to Light
4. Building an Informed Approach to Fraud Risk
5. Practical Next Steps for Business Owners
6. Looking Ahead

The Growing Importance of Fraud Prevention

Modern operations bring efficiency, but they also create new points of exposure. Multiple payment channels, outsourced functions, and geographically dispersed workforces can make it more difficult for management to maintain visibility over day-to-day activities. The consequences of fraud—financial loss, regulatory scrutiny, and erosion of trust—can be significant and time-consuming to address.

Management is ultimately responsible for identifying risks and establishing appropriate safeguards. A CPA who understands your operations can assist by helping you recognize areas where vulnerabilities may exist, suggesting opportunities to enhance and strengthen internal controls, and explaining how those controls are typically evaluated over time.

Understanding the Schemes Most Likely to Affect Your Business

Fraud takes many forms, and it is important for business owners to engage in clear, practical discussions—internally and with trusted advisors—about which risks are most relevant to their environment. Owners and management should understand how common schemes occur, how they might surface in day-to-day operations, and the controls that best limit exposure.

• Asset misappropriation — Theft of cash, diverted receivables, or manipulated expense claims. These schemes are common because they often require limited technical expertise. Management should periodically review cash-handling procedures, reconciliations, expense policies, and segregation of duties, and may consult with their CPA as needed when evaluating whether existing practices are appropriate for the size and complexity of the organization.
• Corruption — Bribery, kickbacks, and undisclosed conflicts of interest. These schemes often involve outside parties and can undermine vendor integrity and procurement decisions. Business owners should understand the importance of vendor due diligence, approval thresholds, conflict-of-interest disclosures, and related policies. CPAs can be a resource for discussing common practices and considerations in these areas.
• Financial statement manipulation — Inflated revenue, concealed liabilities, or other distortions of reported results. Though less frequent, these schemes have outsized impact on lenders, investors, and strategic decisions. Management should understand the limitations of routine accounting, compilation, review, or audit services, as well as the role of strong close procedures and governance. CPAs can help explain these limitations and discuss when additional or specialized services may be appropriate.

How Fraud Typically Comes to Light

Fraud is rarely uncovered by chance. Most cases are identified because someone inside the organization speaks up, making confidential reporting channels and whistleblower protections essential. Internal audits, timely reconciliations, and proactive monitoring catch many other issues before they grow.

Data analytics and automated reviews can also help organizations identify unusual patterns—such as duplicate payments, unexpected vendor activity, or inconsistent transaction coding—that warrant further attention. These tools do not prevent fraud on their own, but they can support management’s oversight efforts.

Building an Informed Approach to Fraud Risk

An effective approach to fraud risk is ongoing and rooted in management awareness rather than one-time actions. While CPAs do not have responsibility for preventing or detecting fraud, they can assist owners and management by providing perspective, education, and guidance as organizations evaluate their own practices.

Areas where business owners should maintain awareness—and where CPAs may provide insight or recommendations—include:

• Internal controls — Understanding the importance of segregation of duties, approval processes, reconciliations, and follow-up reviews, and periodically reassessing whether these controls remain appropriate as the business evolves.
• Ethical culture — Establishing clear expectations through a code of conduct, internal policies, and consistent messaging from leadership. CPAs can offer observations on how tone at the top and training practices influence risk.
• Technology and analytics — Gaining familiarity with available tools and reports that can support oversight and discussing with advisors which approaches may be practical given existing systems and resources.
• Risk assessments and response planning — Having a basic understanding of fraud risk areas, knowing when specialized assistance may be warranted, and recognizing considerations related to documentation, insurance, tax matters, or regulatory reporting if concerns arise.
• Transparency — Clearly understanding what services your CPA is engaged to perform, what those services do and do not cover, and how findings or concerns would be communicated.

Practical Next Steps for Business Owners

To help prevent fraud, business owners should focus on strengthening their own understanding and oversight, using advisors as resources where appropriate. Practical steps include:

1. Reviewing internal processes in higher-risk areas such as cash receipts, vendor payments, and payroll.
2. Confirming that confidential reporting mechanisms exist and that employees are aware of them.
3. Ensuring management understands the limitations of routine accounting and assurance services.
4. Discussing with your CPA, as needed, common fraud risks in your industry and typical control considerations.
5. Clarifying in advance how additional services—such as agreed-upon procedures or forensic work—would be scoped and priced if concerns arise.

Looking Ahead

Fraud prevention is a continuing responsibility, not a one-time project. Protecting your organization’s assets, reputation, and management bandwidth requires consistent attention. In this regard, CPAs can serve as valuable advisors—helping business owners understand risks, evaluate existing practices, and make informed decisions when issues or questions arise.

Cassidy Wood joined ARB in 2019 as a college intern and became a manager in 2025. She specializes in providing business advisory and attest services primarily to commercial businesses, auto dealerships, construction companies, and employee benefit plans. Since joining ARB, Cassidy has been actively involved with the firm’s college campus recruiting efforts and plays a key role in identifying and attracting top emerging talent.