---
title: "Fraud – The Cost of Doing Business?"
date: 2021-03-01
author: "Aaron Cole"
categories:
  - name: "Uncategorized"
    url: "/category/uncategorized.md"
---

# Fraud – The Cost of Doing Business?

Guest Author Tim Dimoff, www.sacsconsulting.com

According to the [Association of Certified Fraud Examiners](https://www.redflagreporting.com/glossary/what-is-the-acfe/) (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](https://timothydimoff.com/2020/01/10/tomorrow-national-human-trafficking-awareness-day-know-the-signs/), 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](https://www.redflagreporting.com/contact-us/) to learn how our hotline services can protect your organization and your people.*