Organizations Losing 5% of Revenue to Fraud Each Year

The Association of Certified Fraud Examiners (ACFE) released its biannual 2016 report last week.  According to the report, the typical organization loses 5 percent of its revenue to fraud each year.  The losses caused by fraud reported in the study found an average loss of $2.7 million per case, with $150,000 being the median loss. We’ve compiled a shortlist of their findings focused on small to medium sized businesses.

The most common form of occupational fraud found was asset misappropriation, which occurred in more than 83% of cases and caused a median loss of $125,000.  Financial statement fraud was much less common (less than 10% of cases reported) but caused the most damage, with a median loss of $975,000.

While corruption was more a common fraud risk in large organizations, check tampering, skimming, payroll and cash larceny schemes were twice as prevalent in small organizations as in larger organizations.

Small Organizations are at the most risk. Organizations with fewer than 100 employees were the most likely to suffer from fraud in the study, representing about 30% of the cases reported. The median loss suffered by those firms was $150,000, the same as those suffered by large organizations (10,000+ employees) and more than organizations with 1,000-10,000 employees.

Small organizations are particularly vulnerable to fraud because they a significantly lower implementation rate of anti-fraud controls and have fewer resources to withstand losses. Small organizations also are much less likely to have anti-fraud controls in place than larger organizations.

For the full ACFE executive summary, go here.

While no company, even with the most robust internal controls, is completely protected from fraud, it’s important that entrepreneurs put measures in place that protect their company’s financial and management data.  Internal controls are critical in the process of setting and achieving operational objectives, accurate and reliable financial reports, and compliance with applicable laws and regulations.

For more information, contact Talley & Company today.