The co-owners of XYZ Corporation were working hard and long hours to make their business successful and profitable. This business supported them and their family plus the fifty people who worked for them. They were surprised to learn that their profits had been dwindling for some time. Why?   Was business down? No; it was expanding, with sales increasing monthly. They were perplexed as to what was causing this reduced earning.

This was a small company with employees who had worked together for a long time. They had forged strong relationships with one another. So the idea that one of them was embezzling from the company was difficult to imagine, let alone prove. After all, who would steal from a company that provided jobs for everyone? Who would steal to take more when they were being paid a fair wage? This theory of embezzlement just did not make sense. Besides, the company just had recently completed audit and there were no findings of fraud or anything suspicious.

Businesses have just gone through the worst economic downturn since the Great Depression. Most business owners and chief executives have reduced debt, increased their cash reserves, and increased worker productivity, resulting in a leaner, more effective business model. These improvements were necessary to survive in this difficult business environment. Now, businesses, large and small, are poised to capitalize on new and greater opportunities. However becoming a leaner and more efficient business with significant cash reserves has also made such businesses a target for fraudsters.

In its 2012 Report to the Nation, the Association of Certified Fraud Examiners states that on average, businesses lost about 5% of annual revenues to fraud schemes. This is a significant amount, made possible in part by the fact that fraud is not always what it appears to be and is thus difficult to identify. Fraud too often comes to the attention of management as something peculiar or odd, and it is dismissed because it is not easily identified for what actually is.

Faced with compelling numbers that indicate a serious threat to your business and other businesses, owners and executives need to develop a broader awareness about fraud, i.e. what is fraud? How can you identify it? What can you do to eradicate it from your business?