Rampant fraud committed at companies suggest the need for financial controls — to prevent and unmask fraud. Why?

Fraud against business continues to rage at epidemic proportions in business. Small business is particularly hard-hit.

That’s according to trends in biennial reports by the Association of Certified Fraud Examiners (ACFE).

The latest ACFE report in 2018 covering 2,690 frauds explains how fraud is being committed, hopefully detected and fought.

You might think with advances in information technology that fraud would be less likely than in prior years or decades. Sadly, that’s not the case.

The median fraud loss in 2018 was $130,000. Companies with more than 100 workers suffered a median loss of $104,000. But smaller companies with fewer than 100 workers suffered a median loss of $200,000.

Combating fraud

Small companies have fewer resources to combat fraud.

For example, companies with tip hotlines were most able to learn about fraud. As you might expect, large companies are likely than small companies to have a tip hotline.

Typical frauds involve asset misappropriation, check and payment tampering, skimming and payroll.

Surprise audits were most-likely to reduce fraud loss and the duration.

The trend is worsening – for both small and big businesses – the median loss was $80,000 according to the 2016 report.

Fraud in 2011

If that’s not enough to convince you about the threat of fraudulent activities, here’s an excerpt from what I wrote in 2011:

Fraud is reaching epidemic proportions at small companies, which are fleeced by an aggregate $2.9 trillion. That’s the estimate in a 2011 study from the Association of Certified Fraud Examiners (ACFE).

ACFE reports the median loss is $150,000, or 5 percent of the annual revenue. Some 30 percent of the companies have 100 or fewer workers. To add insult to the proverbial injury for such businesses, 25 percent of the persons responsible for the fraud had been trusted employees for at least 10 years.

Credit and cash challenged employees in the economy are partially attributed as a cause for the epic fraud numbers.

Unfortunately, some long-time employees seem to have a sense of entitlement when working at small companies that probably pay less than large firms.

Small companies are probably more trusting of workers and are likely less sophisticated in financial controls while being focused on marketing for survival.

ACFE indicates it takes a company about a year and a half before discovering the shortages. More than 85 percent of the perpetrators didn’t have records of committing fraud.

The fraud trend suggests the need for financial controls and insurance protection against losses. That means taking steps to prevent such opportunities among your accountant, bookkeeper, office manager, sales manager – anyone who might have access from your billing records to checking account.

It also means getting an outside participant to review your finances, and explaining your controls to your insurance company. Your insurer will likely have suggestions, and provide premium discounts as a result of your financial controls.

From the Coach’s Corner, as is the custom on these pages, we typically discuss the solutions to such problems:

Embezzlement Tips to Protect Your Nonprofit or Company Assets — Embezzlement is a widespread nightmare in business and the public sector. If you surf the Internet using the key word, embezzlement, you’ll find seemingly countless headlines.

With Fraud Running Rampant, How HR Can Help Prevent It — By taking alert measures, human resources can play a major role to put a dent in the global epidemic of fraud in the workplace.

Embezzlement: Guidelines to Uncover and Prevent it — Embezzlement is a widespread nightmare. Here are proven strategies to discover embezzlement, and to prevent from occurring.

10 Unusual Prevention Tips to Effectively Fight Fraud — If you ever think you might be victimized by fraud, you probably are. Businesspeople are typically victimized by fraud in several ways. The causes will surprise you. Here are simple ways to prevent fraud.

HR — Avoid the 10 Most Common Background Screening Gaffes — In human resources, all background checks are not equal. It’s important to avoid the 10 most-common background-screening errors.

Risk Management in Hiring: Pre-Employment Screening Tips — Here are two questions about hiring: 1) what’s the biggest mistake companies make in hiring employees; and 2) what’s the biggest legal obstacle employers face in hiring? Here’s what to do about background screening.

Best Management/HR Tips: Check References of Applicants — Even if you believe you’ve found an impeccable candidate you must conduct precise reference checks. If you don’t, you risk paying a high price later.

“Trust, but verify.”

-Ronald Reagan


Author Terry Corbell has written innumerable online business-enhancement articles, and is a business-performance consultant and profit professional. Click here to see his management services. For a complimentary chat about your business situation or to schedule him as a speaker, consultant or author, please contact Terry.