The message you are about to hear is not new. But keep reading. A lot of businesses didn't get the message the last time, and they continue to pay the price.
Every other year, the Association of Certified Fraud Examiners (ACFE) issues a report on occupational fraud and abuse. The 2012 report, released earlier this year, tells the same story as was told in the first report, in 1996. Only the numbers have changed.
Occupational fraud is a big problem for businesses, in the United States and around the world, costing companies worldwide an estimated 5 percent of their gross revenues, more than $3.5 trillion, during 2011. Nevertheless, thousands of businesses either do not establish or do not adhere to controls that could have a significant impact on reducing fraud within their operations.
And, for as long as businesses give their employees the opportunity to steal, some of them will take advantage of it. And, by the time fraud is detected, losses can reach levels that could be devastating to small and mid-sized businesses.
Consider these findings from the 2012 report:
Frauds reported to ACFE took a median of 18 months to detect, and the median loss was $140,000. Losses in one out of five cases totaled $1 million or more.
The longer the perpetrator has worked for an organization, the higher the loss is likely to be. Frauds committed by employees with 10 or more years of experience caused a median loss of $229,000. Those committed by individuals in their first year on the job had a median loss of $25,000. The message, while obvious, is often ignored: the employees you are more likely to trust have the potential to do the most damage.
Perpetrators with higher levels of authority tend to cause greater losses. The median loss for frauds committed by owners/executives was $573,000, compared with $180,000 for managers and $60,000 for employees. The message: strong controls are needed at the top, and throughout the organization.
Most occupational fraudsters are first-time offenders with clean employment histories. Of the perpetrators in reported cases, 87 percent had never been charged or convicted of a fraud-related offense and 84 percent had never been punished or terminated by an employer for similar conduct. The message: a clean past is no guarantee of a clean future; rather, it might mean that the perpetrator has never been caught before.
Nearly half of all occupational fraud victims never recover any of their losses.
The ACFE uses three broad categories to describe fraud: asset misappropriation, corruption, and financial statement fraud. The vast majority of frauds (86 percent in the report) involve asset misappropriation, which covers everything from removing inventory from a warehouse to skimming cash before it is recorded on a company’s books to claiming overtime for hours not worked or reimbursement for nonexistent business expenses. Corruption cases cover bribery, conflicts of interest and accepting kickbacks or gratuities from vendors. Financial statement fraud includes a variety of activities associated with overreporting or underreporting assets or revenues. READ MORE
To view additional articles, please go to: