Association of Certified Fraud Examiners (ACFE) released a study based on 1,388 cases of occupational fraud worldwide in 2011.This is an extensive report that analyzed fraud cases based on the type of schemes, perpetrator job function, region and accounting functions that were successfully able to prevent or detect fraud schemes in the organizations.
Most interesting aspect to me out of the study is that an overwhelming cases (36%) were detected through anonymous tips provided to the management. However, accounting controls and methods were second with 26% of the cases detected. As expected, however, the perpetrators were mostly employees who used billing based schemes as the top choice.
Not as shocking is that the most common victims of fraud still remains to be small businesses with under 100 employees. The use of more sophisticated fraud controls are usually lacking in a small private company. Most small companies don’t have access to a controller or CFO who could look at the KPI and metrics which show abnormal activity in the transactional data and billing activities. Also, external audit is lacking and internal audits are sparse and less frequently implemented as compared to a larger corporation. Out of 1,388 cases examined, 753 were in United States. The median loss in small business was at $147,000. The interesting trend there is that from 2008 the median fraud amount has decrease from $200,000. Maybe it’s a sign of improving economy. Using the Worldwide GDP, the extrapolated estimated loss is at shocking $3.5 Trillion due to Fraud. This is especially big that 51% of the fraud does not have any recoveries.
I was especially happy to see that most of the accounting related controls that appeared on the study are already implemented in our outsourced accounting services. Our goal is to make sure that small businesses can continue to focus on growth while not worrying about fraud or other accounting related activities. I created a quick infographic to summarize the study and the impact of fraud on small businesses.
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Download this infographic.