A recent 2014 study by the Association of Certified Fraud Examiners (ACFE) revealed some startling statistics about fraud. The typical business loses around 5% of its revenue annually due to fraud. Globally, that means that nearly $4 trillion in revenues are being lost each year.
This revenue, however, is not the only loss. There are less immediate costs of such fraud. For example, decreased productivity, lowered morale, tarnished brands, and ruined careers or reputations. The cost of fraud is high. However, you can still protect yourself and your small business if you know how fraud is happening and what to do to better protect yourself against it.
Who is at greatest risk?
Believe it or not, the study found that most business fraud affected businesses with fewer than 100 employees. The study found this was because larger companies are more effective at anti-fraud practices (hotlines, internal audits, training for employees).
Simply put, small companies don’t do enough to protect themselves from fraud and are therefore more often the victims of it. The most common type of fraud affecting small business is identify theft – specifically credit card abuse.
What is the financial impact of fraud?
The ACFE’s study found that the median annual loss due to fraud for businesses in 2014 was $145,000. This includes nearly a quarter of cases reporting more than a million in fraud losses. What is striking about the study’s findings is the following:
· The median losses for companies with more than 100 employees was $120,000
· The median losses for companies with fewer than 100 employees was $155,000
Clearly the brunt of the burden of fraud is falling upon small businesses. The most common frauds affecting these businesses are:
· Credit Card Fraud (Identity Theft)
· Financial Statement Fraud
· Corruption and Asset Misappropriation
· Worker’s Compensation Fraud (Both unreported injuries off the job and “malingering” are cited as causes for this being so prevalent).
A note about Worker’s Compensation Fraud. The numbers here are quite alarming. More than a quarter of all property and casualty fraud is estimated to be worker’s compensation fraud. This adds up to over $7 billion annually. The NCIB even stated that worker’s compensation fraud is the fastest growing sector of insurance fraud in the country today.
Where does occupational fraud happen and who is committing it?
Fraud can come from anywhere. Fraudsters can pose as doctors, employees, lawyers, or just ordinary individuals. One of the most telling facts is that a whopping 87% of fraud cases involve first-time offenders with previously clean employment records. There are still some statistics of note:
· 77% of all occupational fraud is committed by employees from sales, accounting, management, customer service, purchasing, operations, or finance.
· Banking and financial sectors have the greatest number of fraud incidents.
· Oil, Gas, and Mining companies reported the greatest median losses due to fraud.
· Illinois and New York have the highest number of questionable insurance claims
How can you protect your small business from fraud?
Though fraud is a serious problem, there are still things you can do as a company to protect yourself. Do not think that your business is not at risk – all businesses in all sectors and parts of the country are indeed at risk of fraud. Therefore you must protect yourself or your business will become one of the many small businesses to suffer loss due to fraud.
It’s key to locate and eliminate fraud when it happens as quickly as you can. To that end, here are some tips you can implement at your place of work:
· Setup an anti-fraud hotline
· Implement an anti-fraud policy
· Institute review procedures and train employees on fraud
· Conduct audits when your employees do not expect it
· Implement monitoring systems to analyze your data
An anti-fraud hotline is one of the number one things you can do as the ACFE found that more than 40% of all fraud cases detected by companies in 2014 came via anti-fraud hotline tips. If you are undecided and have more questions, the best thing you can do is speak with a qualified and experienced small business lawyer who can help you determine a plan of action for your small business.
Still have questions?
Call us at 305-548-5020 for free a consultation