The prevention and detection of fraud in selected Maltese SMEs : a study

Abstract

Reactions to recent corporate scandals have led the public and stakeholders to expect organisations to take a 'no fraud tolerance' attitude. However, SMEs are believed by many to lack internal controls. This study attempts to identify which of a selected list of fraud prevention and detection procedures are mainly used by SMEs in two sectors - Construction and Professional Services. It also sets out to determine whether any significant differences emerge both between the two targeted sectors and within differently-sized firms inside each of the two sectors. The objectives of this study were sought through a questionnaire distributed among 51 Construction companies and 30 Professional Services companies. From the study it emerged that the Professional Services SME sector was much stronger then the Construction SME sector with regards to the adoption of fraud prevention and detection procedures. In fact, several significant differences emerged. These imply that in the areas where they occurred, Professional Services SMEs were more likely to engage in fraud prevention and detection procedures. Significant differences also emerged within both sectors. Therefore, this study shows that one should consider the size and especially the sector in which an SME is operating before generalizing on its application of fraud prevention and detection procedures. While the Professional Services SMEs apply fraud prevention and detection procedures to a larger extent than Construction SMEs, there are still essential procedures which are lacking in both sectors. This study recommends that both sectors should work harder towards establishing fraud contingency response plans, since acting with anger and without any constructive directions when fraud is identified could lead to the end of the company.