The average company loses 5% of revenue to fraud.

Yes, you read that right. According to the Association of Certified Fraud Examiners 2014 Annual Report to the Nations on Occupational Fraud and Abuse, global fraud loss is about $3.7 trillion per year.

$3.7 trillion…with a “T”.

Maybe you are an entrepreneur or small business owner and you think that fraud only happens with big companies–I’m sorry to tell you that:

The most fraud happens in small businesses with less than 100 employees.

I thought I would pull out some interesting stats from the report and end with some suggestions on preventing corporate fraud.

Corporate Fraud Fascinating Stats:

1. $145,000

First, the basics. The report examined 1483 cases of occupational fraud in more than 100 countries. They found that in 2014 the median loss was $145,000–but 22% of cases had at least 1 million in losses.

2. Fraudsters: Men or Women?

This year, the report found that fraud was committed by 66.8% male and 33.2% female conspirators:

avoiding corporate fraud

3. Three Types of Corporate Fraud

I found it interesting that corporate fraud has three classifications:

  • 85% were by asset misappropriation
  • 37% happened with corruption schemes
  • 9% were through financial statement fraud

4. What Industries Are Most At-Risk?

In order of prevalence, here are the industries with the greatest number of cases reported:

  1. Banking and Financial Services
  2. Government and Public Administration
  3. Manufacturing Industries

Here are the industries that had the largest median losses:

  1. Mining
  2. Real Estate
  3. Oil and Gas

5. Which Employees Cause the Most Damage?

The report found a clear correlation between job title and fraud loss. The higher up the employee, the worse the loss. Executives and owners caused a median loss of $500,000, managers caused $130,000 and employees were at $75,000. Wonder which department has the most fraud? Most perpetrators come from:

avoiding corporate fraud

 

6. Are Fraud Perpetrators Educated?

You might be surprised to learn that most fraudsters have post graduate degrees! Check it out:

avoiding corporate fraud

How to Prevent Corporate Fraud

Although corporate fraud causes large losses, there are ways to prevent and lessen the damage done by perpetrators. Companies who have anti-fraud controls in place have less fraud cases reported and lower losses.

In fact, for 58% there was a partial recovery of losses. In 14% there was a full recovery of assets loss. With quick action and the right controls in place you can recover losses.

Small business owners think external audits are the only way to protect against fraud–not true!

Most companies think that external audits (which are typically long and expensive) are the only way to discover internal fraud–this is far from the truth! Only 3% of cases were discovered through audits! 

Here are some other ways you can lower the chances of fraud in your business, whether you are a small company or a multi-branch organization:

1. Tip System

Surprisingly, tips were the most common method of discovery for fraud. 40% of cases were detected by a tip. Organizations with hotlines get the most tips, have 41% less costly fraud cases and detect perperators 50% more quickly. If you are too small for a hotline, don’t fret, tips also come regularly from fellow employees, customers and vendors (in order of prevalence).

  • Be sure to set-up an easy and anonymous tip system for employees, vendors and customers. Make this easy to find and apparent in the work environment.
  • Encourage a culture of honesty. Vanessa does trainings for small and large companies around the world on improving their human capital and creating a culture of honesty.

2. Data-Mining

If you are a technology based company. Consider doing proactive data monitoring. Companies who had data monitoring systems had 60% less costly fraud cases and 50% shorter duration.

3. Recognize Behavioral Traits

Occupational fraudsters exhibit certain specific behavioral traits that are early warning signs for colleagues and employers. In 92% of cases reviewed there was one common behavioral red flag that was identified before fraud was confirmed. Managers and employees should be trained to recognize warning signs.

 

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