Running a small business is full of challenges. One wrong move may 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," Bruce Dubinsky, a managing partner and certified fraud examiner at Duff & Phelps, said 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.