By Richard P. Finkel, CPA, CFE, CIRA, CFF

We all think "it can't happen to us." Our business is safe and our controls are sound. Don't be fooled. Fraud is rampant and is increasing rapidly as recessionary pressures take hold of our economy. Opportunity and financial pressure drive fraudulent behavior. Pick up any local newspaper and the headline screams of fraud:

  • "Bookkeeper sentenced to 71 months for embezzling more than $15 million from Greenwich company"
  • "Grandmother gets 1 year for embezzling $200,000 to help drug-addicted grandson"

According to the Association of Certified Fraud Examiners (ACFE), U.S. businesses lose approximately 7% of their annual revenue to fraud. This translates to approximately $994 billion in annual fraud losses. The ACFE recently released the 2008 Report to the Nation on Occupational Fraud and Abuse. The study defines Occupational Fraud as "the use of one's occupation for personal enrichment through the deliberate misuse or misapplication of the employing organization's recourses or assets." The highlights of the study's findings are:

  • The median loss from occupation fraud is $175,000 with more than a quarter of frauds involving losses of at least $1.0 million.
  • The typical occupational fraud scheme lasts two years from the time it begins until the time of discovery.
  • The most common occupational fraud schemes are corruption (bribery or extortion) and fraudulent billing.
  • Almost half of all occupational frauds are detected by tips from employees, customers or vendors.
  • Small businesses are especially vulnerable to occupational fraud with a median loss of $200,000 to companies with less than 100 hundred employees.
  • Lack of adequate controls was the most common factor in allowing occupational fraud to occur.
  • Occupational fraud is most often committed in the accounting department or by upper management.
  • Perpetrators are usually first-time offenders.
  • Perpetrators act alone in almost two-thirds of occupational frauds.
  • The most common red flags are people living beyond their means or experiencing financial difficulty.

In these hard economic times, it is important to guard our businesses against fraud. Businesses that implement anti-fraud controls are much less likely to become victims. Simple steps can be taken, such as surprise audits, anonymous fraud tip lines and fraud training for management level employees.

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