To prevent fraud in your small business, think like a big corporation

Running a small business is full of challenges. One wrong move can not only put your business at risk, it can destroy your entire livelihood. Perhaps the biggest peril of all, experts say, is that small businesses are far more vulnerable than their big, corporate counterparts to fraud.

"Large businesses have better controls in place, and if there's a fraud being perpetrated it comes to light much quicker than in a small business where those controls don't exist," said Bruce Dubinsky, a managing partner and a certified fraud examiner at Duff & Phelps, in an interview with CNBC's "American Greed."

And the typical fraud at a small business is far more devastating than the corporate variety.

"The average small business has a fraud that is about $200,000 per fraud on average," Dubinsky said, citing a report this year from the Association of Certified Fraud Examiners.

That is more than all but a relative handful of small businesses make in a year, according to U.S. Census Bureau data. It is even more devastating in today's gig economy, in which many individual workers are freelancers or independent contractors. By contrast, Dubinsky said, fraud losses at large businesses average around $100,000. That is barely a rounding error for a multimillion-dollar enterprise.

Small businesses are more likely to entrust a single individual with multiple tasks, such as managing the business' books and records while also accessing its bank accounts. But that type of arrangement can give a fraudster the keys to the castle.

"That's probably the most common form of small-business fraud that we see: gaining access to the bank account and then taking money from that bank account," Dubinsky said.

Orange County, California, businessman Jay Avery learned about the risks the hard way when he hired 28-year-old Lizzie Mulder to handle the books for his start-up wine business, eventually installing her as his chief financial officer.

"My friend told me, 'Lizzie, she's great,'" Avery told "American Greed." "'She's got a great personality. She's a hard worker, and she'll get done what needs to be done for your business.'"

Mulder held herself out as a small-business specialist of sorts. Other clients included a hair salon and a Pilates studio. But it turned out that Mulder was not a certified public accountant as her clients believed. And rather than managing their finances, she was robbing them blind, financing a lifestyle that included a beachfront home in Laguna Beach, expensive cosmetic surgery and a pair of valuable Arabian horses.

Mulder eventually pleaded guilty to two fraud counts and was ordered to pay $1.5 million in restitution. She is serving a five-year sentence at a federal prison in California.

"I didn't know people were capable of this kind of stuff, and especially her," said Avery, whose business failed after Mulder skimmed some $185,000 in fraudulent payments.

For most small-business owners, it is all they can do just to keep the operation afloat. So they often turn to others — employees, bookkeepers, or accountants — to handle the pesky financial details. As necessary as that may be, it is an all-too-convenient entry point for fraud. Dubinsky says that makes it essential to choose those people carefully. But doing background checks on your employees and contractors is just a start.

"It's the old saying, 'trust but verify,'" he said. "You can give people trust in the business, but you should be verifying what's going on in your business. Take that extra little bit of time and look at the bank statements that come into your business, look at the financial documents."

That means implementing controls in your business — not unlike the kinds of measures big corporations employ, just on a much smaller scale. For example, big companies segregate responsibilities so that no individual has too much control.

"It's probably one thing I tell business owners. Never allow a bookkeeper direct access to your bank account," Dubinsky said. That includes the ability to add or delete payees online.

Consider having bank statements sent to your home or your personal email account. And when they arrive, carefully inspect them for anything out of the ordinary. That means taking the time to understand the details of your company's finances.

"If you have a loan, for instance, who's able to draw down on that loan and put money into the business? If a bookkeeper can call a bank and draw down on that loan and transfer money to themselves, that's a problem," Dubinsky said.

He also suggests having an outside accountant look at the books twice a year.

"That way, it kind of keeps the bookkeeper honest," Dubinsky said. "They know somebody from the outside is coming in, going to look at those books and records."

Business insurance policies often cover employee dishonesty. Check with your insurance carrier to make sure yours does. If your bookkeeper is an independent contractor, it may be possible to purchase a rider to cover them as well.

Some signs of employee fraud are obvious.

"If your bookkeeper's pulling up in a late-model Porsche or Mercedes, you ought to question what's going on there," Dubinsky said.

Others are far more subtle. If your bookkeeper never takes a vacation, it could simply mean he or she is extremely conscientious, or even a bit of a workaholic. But they may also be covering up a fraud.

"If an employee has not taken vacation for a long period of time, that's a red flag," Dubinsky said. "Nine times out of 10, if a trusted employee is perpetrating a fraud and they have to go on vacation and leave for one week or two weeks, and somebody else steps in, that's when the fraud comes to light."

He says small-business owners should force their employees to take vacations — as inconvenient as it may be — and assign someone else to cover their duties while they are gone. That basic control has the added benefit of keeping your employees fresh.

In retrospect, the red flags surrounding bookkeeper Mulder were everywhere. Despite specializing in small, often struggling small businesses, Mulder lived her Orange County lifestyle to the fullest. Her home, perched in the hills above Laguna Beach, overlooked the Pacific Ocean. She had undergone the full "mommy makeover," an Orange County rite of passage for the rich and famous, featuring cosmetic surgery on various parts of her body. And she loved to flaunt her horses, which came from the most elite bloodlines.

Proving that Mulder's business and her entire persona were frauds would not be easy. She had both a charismatic personality and a unique ability to play on the hopes and dreams of aspiring entrepreneurs.

Dubinsky says that speaks to common threads among the fraudsters who specialize in small businesses.

"The one thing in common that they all have is they're very cunning," he said. "They're very smart people. And they exploit the trust that they gain from their small-business owners."

See how the "Fake Housewife of Orange County," Lizzie Mulder, finally comes face to face with reality. Catch an ALL-NEW episode of " American Greed" Monday, Aug. 27, at 10 p.m. ET/PT only on CNBC.

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