The research which surveyed SME business owners and managers, exposes the previously hidden scale of losses sustained by small businesses.
Nearly one in five business owners and managers whose companies were hit by scams admitted they did not alert authorities after unearthing suspicious or fraudulent activity.
Two thirds of those SMEs cited fear of causing their business reputational damage, risk of exposing serious vulnerabilities within their systems and safeguards or assumption it would be expensive to hire specialist assistance, as the main reasons for writing off losses without notifying authorities.
Fraud was committed by employees in a third of cases and by a contractor in one in four.
False invoicing, identity fraud, exaggerated expenses claims, fictitious refunds and unauthorised withdrawals by employees were the most common violation, the study found.
Craig McAdam, Head of Dispute Resolution at Slater and Gordon, said: “The hidden loses to business revealed in this research are staggering. Seen in isolation, businesses might not think it worth taking action over some fraudulent activity – in many cases they may think there’s little that can be done. But in fact there are many actions companies can take to recover money after the event.
“The impact on the wider economy of these frauds going unchallenged should not be underestimated.
“Small and medium sized enterprises are the backbone of the British economy and the loss of several thousands of pounds to a company can mean the difference between being able to invest and innovate or not.
“SMEs can find themselves targeted by fraudsters because they lack the resources to put in place the systems and controls frequently required to safeguard against many of these scams.
“It is important to be vigilant. Having robust infrastructures can be crucial in stopping a fraud before it’s too late. It is also important to act quickly once a potential fraud has been identified. Companies can freeze assets and take steps to recover loses through the courts.”
One in six SMEs revealed they had been victims of the crime in the last year.
Figures show that Britain’s 5.5 million SMEs suffered more than £1.3 billion worth of losses as a result of fraud, with the average cost of fraud to UK businesses topping £1,540.
On average SMEs were targeted by fraudsters three times in the last year, with nearly half unable to pursue the perpetrator because they were untraceable.
Bosses of small firms said that fraud attempts are more common and far more complex now than they were five years ago.
More than half of SME business owners admitted to never carrying out fraud audits or stress testing their internal procedures because they assumed they were protected, would not be targeted or would spot any unusual activity.
One in five went as far as saying it was not a priority for them, while one in ten said they did not have the budget to carry out the necessary checks.
While many fraud attempts were immediately identified and prevented, victims of scams took an average of nearly six weeks to discover suspicious activity, with one in five frauds taking more than a month before they were uncovered.
More than half of SMEs said they were unaware of their regulatory duties to prevent fraud and just under half said they did not have adequate knowledge to prevent fraud.
Craig McAdam, of Slater and Gordon, added: “Prevention is always better than cure. That means implementing robust systems and controls. SMEs might be targeted by unscrupulous people because they assume that the company will not have the same level of internal oversight to prevent or detect fraud.
“If fraud is committed it is vital to detect it as soon as possible. The sooner it is picked up the more opportunity there is to recover funds through injunctions and other legal avenues.”
Nearly one in 10 said a recent rise in court fees meant they were unable to afford to pursue the perpetrator.
70 per cent of SMEs would be more inclined to recover monies lost from fraudulent activity if they could get access to a third party fund or could enlist a solicitor on a ‘no win, no fee’ basis.