Usage patterns of the fraud risk management framework within small retail enterprises operating in Cape Town

Abstract

The South African Small Business Act No. 102 of 1996 considers small and medium enterprises (SMEs) as distinctive small business entities that are owned solely or by multiple owners, operating nationally in various sectors of the country's economy. SMEs contribute substantially to job creation, enhancement of economic growth and poverty alleviation. Despite the fact that SMEs have contributed positively towards the economic development, particularly in South Africa, prior research has shown that these business entities are affected by fraud more heavily than larger organisations. The focus on the prevention and control of fraud generally tends to be on larger organizations, and research examining fraud within SMEs is limited. This study investigates the factors that may contribute to the existence of undetected fraud within small retail lending to these entities. The study followed a quantitative research methodology classified as survey research as it used a questionnaire to collect and process large amounts of data. In total, 150 questionnaires were collected from retail SMEs management (owners and/or managers) operating in Cape Town since they aligned with the delineation criteria for this study. A positivist paradigm was implemented in undertaking the research and quantitative methodology was used in analysing the data for the research. The research findings avail the fundamental causes of fraud risks within SMEs including inadequate fraud risk management as well as weak internal control systems, resulting in undetected fraud. Undetected fraud that the SMEs were not fully aware of, results in loss of assets, profitability and negative cash flow. It is conclusive to say, based on the research findings that the majority of SMEs do not make satisfactorily use of fraud risk management framework as method for controlling the risk of fraud within their organisations. It is recommended that SMEs effectively manage fraud risks and make use of (or implement if non-existent) adequate fraud risk management framework(s) within their organisations. This framework will enable small retail owner/managers to gain knowledge of varied threats they are faced within daily operations and help them to better respond to these risks.