Fraud – The Cost of Doing Business?

Guest Author Tim Dimoff, www.sacsconsulting.com

According to the Association of Certified Fraud Examiners (ACFE):

• Organizations lose 5% of their annual revenue to fraud each year, and small businesses are the most vulnerable.
• The real estate and financial sectors have the highest losses.
• A typical case costs an organization $8,300 per month, and it’s not usually caught for 14 months. This result, on average, of a total loss of over $100,000!

PwC concurs with ACFE’s assessment. In their research of 5,000 companies, 47% of them had experienced fraud in the last 24 months.

What Types of Fraud are Most Common?

Again, according to the ACFE:

• 86% is Asset Misappropriation. This happens when people who are entrusted to manage the assets of an organization steal from it.
• 43% is Corruption. Forms of Corruption vary but can include bribery and embezzlement. Corruption can also include money laundering and human trafficking, though it is not restricted to these activities.
• 10% is Financial Statement fraud, which is the deliberate misrepresentation of an organization’s financial condition.

What Can You Do to Stop Fraud?

The following measures have significantly curbed company losses:

1. Provide employees a mechanism to report wrongdoing. Whether it’s inside the company or seeing a vendor or customer commit a crime, your workers need to feel safe to say what they saw. Hotlines should be available 24/7 and allow the caller to remain anonymous.
2. Implement an anti-fraud policy. This policy must include consequences for scamming, including fully prosecuting individuals who break the law.
3. Training. Employees, contractors, and suppliers should be trained on how to detect and report fraud. This training should occur on an annual basis.
4. Annual outside financial audits. Small businesses often skip audits due to costs, but Certified Professional Accounting firms can often detect irregularities faster than you can.
5. Two signatures on every check.
6. Comprehensive background check on all new hires. Before making an offer, make sure the person doesn’t have a criminal record tied to fraud, scamming, or stealing.

Not a client of Red Flag Reporting’s hotline services?  As a leading hotline provider, contact us to learn how our hotline services can protect your organization and your people.