The ACFE (Association of Certified Fraud Examiners) Global Fraud Study revealed that businesses experience an estimated 5% loss of their annual revenue due to fraudulent activities, resulting in a staggering global total of around $3.7 trillion in losses.
This report emphasizes the critical importance of implementing robust preventive measures and maintaining constant vigilance to protect against fraud.
Aside from financial losses, fraud has various unanticipated consequences. These include reduced productivity, decreased employee morale, negative impacts on brand reputation, and tarnished corporate image due to unethical behavior from both employees and employers.
You’re fortunate! Even though fraud statistics are concerning, there’s still an opportunity to equip yourself with the most up-to-date information and take proactive steps to protect your business. Remaining well-informed will allow you to effectively prevent, identify, and address potential instances of fraud. It’s vital to understand the various forms of workplace fraud and how to implement strong controls in vulnerable areas of your organization.
Small Businesses Suffer Bigger Monetary Losses
Although both small and large businesses fall victim to fraud, it’s crucial to be aware that the Association of Certified Fraud Examiners (ACFE) has definitively determined that businesses with fewer than 100 employees are at a significantly higher risk compared to larger companies. This information underscores the importance of staying vigilant. Bigger companies are well-equipped with anti-fraud measures like internal audits, hotlines, and employee fraud training to ensure integrity and security. Smaller companies are less likely to implement anti-fraud measures to detect fraud at an earlier stage.
Fraud Creating a Monetary Impact on Businesses
The ACFE has reported that cybercrime and identity theft, including credit card abuse, are the most common types of fraud in small businesses. Unfortunately, small companies suffer a bigger financial hit due to unscrupulous business behavior.
ACFE’s statistics reveal that corruption cases and asset misappropriation caused significant business losses. Financial statement fraud caused the most monetary damage, with a median of $1 million.
Another source of trouble for businesses is workers’ compensation fraud. According to the NICB (National Insurance Crime Bureau), workers’ compensation accounts for an estimated 25% of the $7.2 billion annual insurance fraud. If the business can review bookkeeping records, they might be able to calculate their business’s fraud statistics specifically.
Battling Fraud in Your Business
Extensive research demonstrates that fraud is pervasive across all industries, regardless of employer size or geographic location. It is absolutely essential to proactively take steps to prevent and minimize the negative impact of fraudulent activities.
CFE fraud experts assert that implementing anti-fraud regulations is instrumental in reducing monetary losses and the duration of fraud schemes. Decreased duration of fraud is imperative, as the longer it persists, the greater the financial damage it can cause a business.
Best Practices for Detecting and Preventing Fraud
These are the proven practices that are highly effective in detecting and preventing fraud in businesses:
- Establishment of an anti-fraud hotline
- Implementation of a code of conduct and an anti-fraud policy
- Provision of fraud training and management review procedures for executives, employees, and managers
- Execution of surprise inspections
- Arrangement of external inspections of internal controls utilized in financial reporting
- Utilization of systems that actively analyze and monitor company data
It is imperative to implement and rigorously monitor anti-fraud measures, as not all of these processes are equally effective. According to the ACFE, a significant 42% of fraud cases were successfully detected through hotlines, while a mere 3% were identified through external audits out of the 80% of reported fraud cases. Suppose you are uncertain about which anti-fraud measures to implement in your business. In that case, seeking advice from an anti-fraud consultant, a fraud examiner, or an auditor is advisable to determine the most effective approach for your business.
Conclusion
The key is to be attentive to both preventing and addressing fraud. Some business owners believe it won’t happen to them and often need to pay more attention to this aspect due to their many tasks and concerns. It’s important to tackle fraud early in the business to prevent it from becoming a major problem.
About Complete Controller® – America’s Bookkeeping Experts Complete Controller is the Nation’s Leader in virtual bookkeeping, providing service to businesses and households alike. Utilizing Complete Controller’s technology, clients gain access to a cloud platform where their QuickBooks™️ file, critical financial documents, and back-office tools are hosted in an efficient SSO environment. Complete Controller’s team of certified US-based accounting professionals provide bookkeeping, record storage, performance reporting, and controller services including training, cash-flow management, budgeting and forecasting, process and controls advisement, and bill-pay. With flat-rate service plans, Complete Controller is the most cost-effective expert accounting solution for business, family-office, trusts, and households of any size or complexity.
