Fraud: A Concomitant Cause of Small Business Failure‪.‬

ABSTRACT This paper presents evidence to support a new perspective: the majority of small businesses fail because of fraud. Fraud occurs in small firms at 100 times the rate for large firms, and the overwhelming majority of frauds are committed by honest employees who have a perceived need, recognize an opportunity, perceive the probability of detection as low, and have the ability to rationalize their behavior. The authors present a plan for dramatically reducing fraud; one which does not increase costs or rely upon accountants, and which can be implemented by any small business. The best deterrence to fraud is fear of social sanction: i.e., the loss of the respect of one's peers. The proposed plan creates a climate in which these sanctions will prevail.