Fraud: big impact on small firms

Fraud losses amount to five per cent of companies’ revenues every year as smaller firms are feeling the pinch the most, according to a major new global study from the Association of Certified Fraud Examiners (ACFE). Its biennial Report to the Nations on Occupational Fraud and Abuse shows fraud could be worth a total of $3.7 trillion worldwide.

The smallest organisations suffer “disproportionately” to fraud and are notably lacking in anti-fraud controls, the report found. In addition, the specific fraud risks faced by small businesses differ from those faced by larger companies. Small organisations - those with fewer than 100 employees - incurred a median loss of $154,000, versus the largest companies (more than 10,000 employees) posting a median loss of $160,000.

“While resources available for fraud prevention and detection measures are limited in many small companies, several anti-fraud controls - such as an anti-fraud policy, formal management review procedures and anti-fraud training for staff members - can be enacted with little direct financial outlay and thus provide a cost-effective investment for protecting these organizationsfrom fraud,” says ACFE in its roundup.

But even larger organisations have room for improvement. Many of the most effective anti-fraud controls are being overlooked by a significant portion of organisations, says ACFE. Proactive data monitoring and analysis, surprise audits, a dedicated fraud department and formal fraud risk assessments were among the other methods being under-utilised.

“Fraud schemes that occurred at victim organisations that had implemented any of several common anti-fraud controls were significantly less costly and were detected much more quickly than frauds at organisations lacking these controls,” said the report.

Early detection was key to limiting losses. A fraud detected in the first six months produced a median loss of $50,000. Those lasting five years cost $1 million.

Recovery is a problem, with just 58 per cent of  organisations recovering any of their losses due to fraud, while just 14 per cent had made a full recovery.