Fraud in all the Wrong Places . . .

by Eric Lee

These days, business owners and operators have a lot of things to worry about when it comes to running their businesses and thinking about fraud is one of the least of their problems. Many roll the dice and hope the day never comes while others think that it could never happen to them. But if fraud comes (and it does come) it can have a huge financial impact to the company and be potentially devastating.
Fraud costs the typical company 5% of revenue a year. With recent cut backs, layoffs and cost cutting the opportunity to commit fraud gets that much easier. To make matters worse, difficult economic times can create additional pressure on some employees to commit fraud as well.

The Face of Fraud
Many people have this idea of what fraud looks like based on what they see in the movies. They think fraud only happens to big companies by men in expensive suits. But the statistics may surprise you. According to the Association of Certified Fraud Examiners 2014 Report to the Nation, small businesses (with less than 100 employees) and private companies see the highest percentage of fraud, more than any other segment. The cost of fraud can also be staggering. Small business fraud averages over $150,000 per incident (one of the highest of any business segments) and can last for years.

What may also surprise you are the people who commit the fraud. Statistics show that over 50% of those who commit fraud had been with their companies for at least 5 years. 85% of all fraudsters have never been convicted of a crime. Almost 80% of those committing fraud were an employee or manager of the company.
Combatting Fraud
Many people think that combatting fraud is too expensive or only for larger companies. But since fraud can occur everywhere and to anyone, here are some of the top fraud controls that are cost effective to implement and can reduce your fraud exposure:

• Management or Supervisory Review
• Code of Conduct / Anti-Fraud Policy
• Formal Fraud Risk Assessment
• Fraud Training
• Proactive Data Monitoring/Analysis
• Job Rotation / Mandatory Vacation

While you may not be able to completely eliminate fraud from happening, there are many things you can do that can greatly reduce the chances of it happening to you. By proactively taking steps to monitor fraud and reduce the risks, you can save your company a lot of time, money and heartache.

Eric Lee is the Principal Phoenix Practice Leader at Keegan, Linscott & Kenon, PC, Scottsdale, AZ office. He can be reached at (480) 374-6100 © 2014 All Rights Reserved. Eric Lee