Small businesses are focused on growth and staying afloat and may lose sight of dangers lurking just below the surface. Risks of losses resulting from embezzlement, inappropriate vendor relationships and lack of segregation of duties to name a few. These risks are a serious threat to small businesses and their owners. A recent study by the Association of Certified Fraud Examiners (ACFE) found that small businesses suffered the largest median losses due to lack of internal controls.
Effective risk management prioritizes risks and fraud should be right on top. These risks can be internal and even external to the company. There are, however, cost-effective policies that small businesses can implement to address these risks.
This year, ACFE published an update to its Report to the Nations on Occupational Fraud and Abuse. This report, since its inception in 1996, has shed light on how businesses lose money to fraud and abuse, who commits fraud, behaviors they exhibit and prevalence and effectiveness of controls to detect and prevent fraud.
Some interesting highlights from the report:
- The median loss in the study was $140,000
- Organizations that implemented any of 16 common anti-fraud controls reduced their losses and the time it took to detect fraud (compared to businesses without those controls).
- 49% of businesses do not recover losses due to fraud. (Prevention is key!!!)
- Living beyond their means, financial difficulties and unusually close relationships with vendors or customers were some of the most common behavioral traits exhibited by perpetrators of fraud. In the cases examined, one or more of these traits were noted 81% of the time.
- The most common means of identifying fraud was through tips from internal and external sources. Reporting mechanisms such as hotlines and fraud awareness training are critical to preventing and detecting fraud.
For more information on how you can implement these policies and minimize risk, please contact Aronson LLC’s Government Contract Services Group at 301.231.6200.
Source: Report to the Nations on Occupational Fraud and Abuse, 2012 Global Fraud Study. Association of Certified Fraud Examiners.
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