April 15, 2013

The high cost of fraud may be even more staggering than you think.

The typical business organization loses 5 percent of its revenues to employee fraud each year – a whopping $3.5 trillion worldwide, according to the latest biannual Report to the Nations of the Association of Certified Fraud Examiners.

And, even sadder, half of those companies don’t recover a dime that was stolen from them.


businessman handcuffed

One in five of the employee thefts was for more than $1 million, with the median fraud costing businesses $140,000, according to the fraud examiners report, which analyzed 1,388 fraud cases in its study. The results closely follow patterns from previous years.

The median length of time the fraud was being committed before it was detected: 18 months.

More than half of the fraudulent activities were corruption and billing schemes. Corruption includes purchasing and sales schemes, invoice kickbacks and bid rigging as well as illegal gratuities. Billing schemes include the creation of shell companies, personal purchases and fraudulent disbursements to vendors.

Occupational fraud hits small businesses the hardest, the report said, because they don’t have as many anti-fraud controls in place. Small businesses suffered the largest median losses in the study, and the losses had a greater impact on the organization.

The most cost-effective anti-fraud methods recommended for small businesses are establishing tip hotlines, providing employee education and setting a proper ethical tone within the organization.

This article was originally posted on April 15, 2013 and the information may no longer be current. For questions, please contact GRF CPAs & Advisors at marketing@grfcpa.com.