Many small businesses are ripe for fraud. Often, a single person ends up with a lot of responsibility, especially when it comes to finances, and if there are no checks and balances on that person, they can pocket a lot of money that should be going back into the business.

CNBC recently ran an article detailing the dangers of fraud in smaller businesses and cited a report that says the average amount lost to fraud is $200,000 per incident for small businesses compared to $100,000 for large corporations.

Let's take a look at the various red flags that you can watch out for in a small business that point to a possible fraud going on and what you can do to prevent it.

1. Too much concentration

Fraud happens at small businesses largely because responsibility is concentrated with one person. If a small business owner does not have much experience with finances, they often hire a single person to take care of finances. To make things easier, they will give that person the keys to the bank account.

An entrepreneur friend of mine discovered his company's full time bookkeeper was defrauding him after he was given total access to the bank accounts without any oversight. Eventually the bookkeeper started writing vendor checks and depositing them into his own account as if he was paying vendors.

What you can do: Segregate responsibility so no one person has too much power over the finances and don't automatically give the finance person access to the money.

In our early days when we did not have enough team members internally to handle finances, we hired an accounting firm to do the bank and credit card reconciliations. It is an easy and low cost solution given the risk.

2. Your finance person is living large.

If your finance person seems to be living a little too extravagantly, ask yourself where they are getting all their money from. It might be your business.

Also, watch for signs of drug addiction, as an addiction can lead people to do some terrible things.

What you can do: There's nothing you can do, per se, about your finance person living an extravagant lifestyle, but be cognizant of any ostentatious displays of wealth from them. While you should avoid paranoia, you should be aware of signs that say they have it a little too good and remember that it may be the person you least expect that is robbing you.

Make sure your business insurance covers loss from employee dishonesty and if your bookkeeper is an independent contractor, see if you can get a rider to cover them, as well.?

Having a drug testing policy in place is also a good idea.  

3. Your finance person isn't qualified.

A real certified accountant is crucial for a business to be able to run properly, but sometimes a particularly brazen fraudster will pass themselves off as an accountant or a financial expert of some sort and not have any qualifications at all.

What you can do: Conduct background checks and employee verifications.

4. An employee never takes time off.

When an employee is committing fraud, they will often refuse to leave for any given amount of time because there is a higher likelihood of them getting caught when someone else takes over their duties for a week or two.

Another entrepreneur I know was being robbed by a secretary who worked for him for more than a decade. They thought she was a super employee since she always volunteered to do everything and never took time off. They found out by accident that each year she was stealing about $50,000 from their small practice.

What you can do: Force employees to take time off. It can be difficult for a small business to have someone duck out for a while, but having other people take over their duties is another check you can put in place to prevent fraud. It also has the added benefit of allowing employees to come back refreshed.

5. Nobody checks the books.

Whether it's from trusting someone too much or just being too busy, small business owners too often neglect to look at their own books or have their books checked by a third party once in a while to make sure everything is running as it should.

What you can do: Consider having bank statements sent to your home or personal email so you get first access to them and have your books audited at least once per year.

Fraud can be devastating to a small business. Protect yourself and your business from attacks.