Your friend Scott Adams has hired you to prepare a fraud prevention analysis for him. Scott is a successful home-based custom furniture builder. He feels like he is ready to expand his business, Woodcraft By Scott. He doesn't want to incur the expense and effort of creating a retail store, etc. He would rather grow through internet sales and as his business expands, he'll look for a workshop and hire help. For now, Scott's wife Lisa handles phone and email ordering and the business end of the operation. Scott hired a web page designer who has created a website and on-line ordering process for the business. The current plan is to roll out the website and the on-line business on October 1st. Lisa recently saw a segment on the television show "American Greed"1 about a credit card fraudster. This frightened her. She convinced Scott to give you a call. You have been contracted by Woodcraft By Scott to reassure Lisa and to protect this budding small business from fraud.

Scott has asked you for a memo addressing the following:

1) What types of fraud should this type of business be concerned with? Identify at least three fraud risks and explain them.

2) What prevention and control steps should the business take to counter these fraud risks? Note: he trusts Lisa and believes that she would be insulted if you identified as a risk her control of the business.

3) Scott is a bit concerned about the costs of these potential controls. He says that his approach to business decisions mirrors his furniture building method - one step at a time. So, he would prefer that you give him options, in priority order based on level of risk, so that he can take it one step at a time if he chooses.