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Scary Fraud Statistics - Refresh Your Control Systems for 2011

November 23, 2010

Earlier this year the Association of Certified Fraud Examiners issued their 2010 Report to the Nations on Occupational Fraud & Abuse (the “Report”).

Ok, so I’m a few weeks late with my title, but I do have some scary facts that will help you get past it. Earlier this year the Association of Certified Fraud Examiners issued their 2010 Report to the Nations on Occupational Fraud & Abuse (the “Report”). This report has become one of the most authoritative and quoted publications on fraud, and has some very interesting statistics. In its latest edition, in an effort to reflect the truly global nature of the economy, the report surveyed participants from around the globe (with 43% of its 1,843 cases reported on originating from outside of the United States).

The findings of the survey were very interesting; with participants estimating that the average organization will lose 5% of its annual revenue to fraud. Given the state of the economy over the past couple years; I’m sure most of you would not be happy to see 1% drop to the bottom line, let alone 5%. There are several other interesting statistics that came out of the survey, including the fact that the median loss was $160,000, and nearly a quarter of the cases studied suffered losses of over $1 million. Now, I know these numbers are staggering enough on their own, but combine this with the fact that average fraud lasted for 18 months before being detected, and it can turn out to be a recipe for disaster for a company that is already on the brink of financial collapse.

Other noteworthy items from the Report were that small organizations were more likely to be victimized than larger organizations, mainly due to the lack of a complex control structure. Unfortunately, given some of the cases I have had the opportunity to work on; this is usually one of the main reasons why the fraud was able to be perpetrated for such a long time. To further that, most companies aren’t as concerned until they are directly impacted, and, usually, by that time it’s too late and they have already been defrauded.

I know this post is similar to some of my past posts, but there are too many text book cases out there of fraud happening every day, and until people take the time to educate themselves and take an honest look as to where the risks might lie in their organization, they are setting themselves up to be defrauded. There are too many types of fraud out there, from check tampering and expense reimbursement, billing and payroll fraud, all the way to cash larceny, to turn a blind eye until it’s too late.

One of the newer types of fraud that has made a lot of headlines lately is electronic funds transfer (EFT) fraud. This has become such an epidemic that United States Secret Service, in concert with other organizations, has issued a fraud advisory to businesses highlighting how this fraud occurs and the steps you can take to protect yourself. Imagine, logging into your computer first thing in the morning to see that all of your cash was wire transferred out overnight and that you potentially have no recourse for recovery? I know it’s scary, but it’s happening every day and you need to take steps to protect yourself.

The end of the year is a great time to talk to your advisors, take a fresh look at your control systems, and figure out ways to protect your company in the New Year. If you don’t have anyone to discuss your concerns with, feel free to give me a call and I’d be happy to come out and meet with you to discuss your situation and give you some ideas for improvement. It doesn’t matter if you have 10 or 1,000 people working for you, there are always solutions available to suit your needs.

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