Think your Company is safe from fraud? Think again. Do you trust your employees? Unfortunately, trust is not an internal control that will protect you from situations you aren’t personally attending to. Consider these statistics from the 2012 Report to the Nations done by the Association of Certified Fraud Examiners, Inc (ACFE).

  • 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 their study was $140,000. More than 1/5 th of the cases were losses of over $1 million.
  • Of the frauds reported to ACFE it took a median of 18 months before they were detected.
  • The smallest organizations in the study suffered the largest median losses.
  • The vast majority (77%) of frauds in their study were committed by individuals working in one of six departments: accounting, operations, sales, executive/upper management, customer service and purchasing.
  • Most occupational fraudsters are first time offenders with clean employment histories.
  • The longer a perpetrator worked for the Company, the higher the fraud losses tended to be. Those with more than ten years at the Company caused a median loss of $229,000; by comparison, those who committed fraud in first year at the Company caused a median loss of $25,000.

Why does fraud occur? There are 3 reasons :  there is opportunity to do it because of a lack of internal controls, there’s motivation to do it, and the perpetrator has the attitude to do it. A dishonest person may have a difficult time committing fraud if there are strong internal controls in place thus little opportunity. But an honest person that feels they are underpaid may have the right attitude to commit fraud if there is opportunity to. Some are motivated by life circumstances that bring them to commit fraud even if they term it ‘borrowing’.

How can I prevent fraud?  Click here to go to my next post.


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