Report: Fraud hitting small business hard

Written on Apr 25, 2018

The Association of Certified Fraud Examiners (ACFE) has released its findings on the state of fraud in corporate America, and the numbers are concerning.

The association’s biennial research, published in its 2018 Report to the Nations on Occupational Fraud and Abuse, looked at 2,690 cases of occupational fraud at organizations around the world. The average duration of these incidents occurred over 16 months and cost the businesses affected a whopping $7 billion.

According to the report, the most common forms of fraud include embezzlement, payroll fraud and reporting false expenses.

While larger companies (those with more than 100 employees) suffered median losses of about $104,000, smaller businesses suffered more. Companies with fewer than 100 employees had an average median loss of $200,000 — almost double that of their larger counterparts, the research showed.

Why? Resources. Small businesses have fewer resources than big corporations, fewer internal controls and less time to supervise what employees are doing. In addition, small businesses tend to have fewer mechanisms for reporting potential fraud, such as hotlines that people could use to leave anonymous tips. The report said 44% of frauds were detected this way, the report said.

Being aware of certain behavioral red flags is important. Requiring vacations for all employees is a must, as is having a process for anonymously tipping off owners when an employee suspects a problem. Simple internal controls, such as counting and locking up inventory and performing regular bank reconciliations, is necessary. Bringing in an accountant once in a while to perform spot audits is also critical.

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