Key takeaways:
- Internal fraud, committed by company staff, affects a significant proportion of European SMEs.
- It takes various forms: undeclared conflicts of interest, falsified expense claims, passive corruption.
- Three recent cases, in France, Germany and Italy, show that even well-structured SMEs can be affected.
- Three prevention levers help limit the risk: pre-payment controls, targeted monitoring of high-risk areas, and staff training.
- The lack of dedicated resources often makes SMEs more vulnerable than large companies to this risk.
Fraud from within: an underestimated risk
Internal fraud, committed by company staff, represents a growing threat to SMEs in Europe. According to a study, 38% of small businesses have been victims of fraud in the last 24 months, with a quarter suffering a financial impact of more than €1 million.
Unlike external fraud, it is committed by people who know the company’s internal processes. This is precisely what makes it more difficult to detect, often for several months or even several years.
It can take various forms:
- Undeclared conflicts of interest
- Breaches of professional confidentiality
- Passive corruption
Three European SMEs recently affected by internal fraud
In recent months, several cases of internal fraud have shaken European SMEs.
In France
The finance director of an SME diverted €1.2 million over 5 years by falsifying invoices and bank statements. This type of embezzlement almost always results from insufficient cross-checking between the issuance of an invoice and its actual payment.
In Germany
An administrative employee stole €800,000 from her company by issuing fake expense reimbursements. Expense claims remain one of the least monitored areas in small organisations, due to a lack of systematic verification processes.
In Italy
A procurement manager accepted bribes from suppliers in exchange for contracts, causing €500,000 in losses to his company. Passive corruption primarily affects roles that negotiate alone with external suppliers, without a second review of the final decision.
Three simple methods to prevent internal fraud
- Carry out sufficient checks before any payment, including systematic checks to prevent and detect fraud. Dual approval of outgoing payments remains one of the most effective deterrents.
- Include monitoring procedures within internal controls, particularly in areas of significant risk: procurement, expense claims and cash management.
- Properly train staff at all operational levels, including on fraud awareness. A trained employee can identify a warning sign more quickly than a control system alone.
Is your company exposed to the risk of internal fraud?
Why SMEs are particularly exposed
Large companies generally have a dedicated compliance department, automated detection tools and regular audits. SMEs, on the other hand, often rely on a single person for accounting, procurement and cash management, which mechanically reduces the number of cross-checks on each operation.
This concentration of tasks is not a result of negligence; it simply reflects the resource constraints specific to small organisations. This is precisely why simple, even low-cost, procedures can have a disproportionate effect on reducing risk.
European SMEs must act now to protect themselves against internal fraud. Eterra Partners offers tailor-made solutions to help companies implement effective and regulatory-compliant anti-fraud procedures.
Ready to secure your internal processes?
YOUR QUESTIONS
FAQ – Frequently asked questions about internal fraud prevention
Before contacting us, you may have these questions. Here are direct answers from our senior consultants.
What is the difference between internal fraud and external fraud?
Internal fraud is committed by someone who belongs to the company, whether an employee, manager or service provider with access to internal systems. It is more difficult to detect because the perpetrator knows the processes and knows how to circumvent them without raising suspicion.
What are the warning signs to prioritise in an SME?
A lifestyle clearly beyond what their salary would allow, repeated refusal to take leave, reluctance to delegate certain tasks, or recurring discrepancies between internal records and bank statements are among the most common warning signs.
Can a small business implement anti-fraud controls without a dedicated budget?
Yes. Segregation of duties, dual approval of payments and cross-checking of expense claims do not require expensive tools. They are primarily matters of internal organisation.
What should you do if internal fraud is suspected within the company?
Document the facts without informing the person concerned, secure access to sensitive systems, and seek advice from an external consultant before any direct confrontation. Acting too early or without solid evidence could jeopardise any potential proceedings.
To learn more
- Article : “Lessons to be learned from corporate fraud“, Eterra Partners.
- Article : “The biggest investment frauds in Europe: a detection and prevention guide“, Eterra Partners.
