Fraud costs businesses uncounted billions a year. Consider these conclusions from a 2011 worldwide survey by the Association of Certified Fraud Examiners:
- Survey participants estimated that the typical organization loses 5% of its revenues to fraud each year.
- The median loss caused by the occupational fraud cases in the survey came to $140,000. More than one-fifth of these cases caused losses of at least $1 million.
- The most common method of fraud was check tampering, followed by skimming (the theft of unrecorded sales), billing manipulations and expense reimbursements.
In fact, small businesses are usually more vulnerable to embezzlement than Fortune 500 corporations. “Small companies are more prone to becoming victims of embezzlement because they don’t have internal controls and have oversights by outside auditors,” says accountant and former IRS agent Gary Iskowitz.
One reason small companies take a bigger hit is because the scams are harder to detect and last longer, sometimes several years, experts say. Despite their vulnerability, many of these businesses don’t take basic precautions to deter fraud. “There’s a reluctance to think about this, compared to larger companies. The attitude is, ‘I’ve got too many other things to think about as a business owner,'” said Rich Simitian, Southern California managing partner for accounting firm Grant Thornton.
Most of the fraudsters aren’t hardened criminals but rather longtime, often trusted workers who rise through the ranks and take on major responsibilities. Employee theft usually starts small and then escalates over time, often triggered by the worker’s personal financial problems.
To learn how you can develop a comprehensive program to help protect your business from these “inside jobs,” feel free to get in touch with our risk management specialists.