Fraud Prevention: Never Too Late for Your Business
How’s Your Fraud Prevention?
It’s a hot topic these days. FRAUD!
The bigger the business, the more employees, and the fraud costs skyrocket. Big businesses that have engaged in fraud end up paying ‘gazillions’ in violations, penalties, and legal fees. So why don’t they suffer greater from these mega fines? Because they’ve got equally prosperous shareholders, business partnerships, investments, and revenue able to cover these costs. That’s not to say these organizations don’t suffer the financial loss from occupational fraud, and the battering of their brand and image. But take a big global ‘box store’ for example. If they have to pay $500 million in FCPA fines, they’ve pretty much covered that in a day of sales world-wide (just guessing but you get the picture).
Small, and many medium sized businesses, don’t have that kind of cash flow to cover fraud losses, legal fees, and violations. If a small or medium sized business found itself face to face with having to pay fines, cover financial losses, protect its brand and reputation, chances are it is game over for that business… not always, but it’s certainly detrimental.
Fraud costs small business a median loss of $155,000, according to the ACFE. This is just too much for any small business to handle, and this is a huge threat to the success of that small business. Employee theft and fraud of this magnitude isn’t easily absorbed into small business financials.
Smaller businesses do suffer different types of fraud, compared to larger organizations, according to the ACFE’s Report to the Nations. And it certainly makes sense. Where big business might have the financial markets to “play” with and investors to defraud, small business fraud may be more geared towards cooking the books, defrauding vendors, falsifying invoices, etc. And compared to big businesses with many people ‘playing the fraud game’, all it takes is one bad apple in a small business to wreak havoc and cost the business more money than it has to play with.
Also, smaller businesses are typically under protected by anti-fraud controls compared to their big siblings. This makes them considerably vulnerable to this threat. Resources for anti-fraud controls are limited in many smaller organizations, however, there are measures that a small business can take to fight fraud.
Many smaller and medium sized businesses might think that when it comes to fighting fraud in the workplace, that the best methods are just too expensive, too high-tech, too complicated, or too hard to set up. Turns out, the best way to fight fraud actually starts with an anonymous employee tip.
According to the ACFE’s Report to the Nations organizations with hotlines were much more likely to catch fraud by a tip, which their data showed was the most effective way to detect fraud. These organizations also experienced frauds that were 41% less costly, and they detected frauds 50% more quickly.
So why is it that only half of US organizations have fraud hotlines in place? You’d think that when employee fraud is as costly as it is – it’s estimated to cost over $3 trillion each year, globally – that such a cost-effective and low-tech method would be incorporated more frequently.
So How Effective Are Whistleblower Hotlines?
Very effective indeed! The ACFE’s 2014 Global Fraud Study surveyed 1,483 cases of fraud from companies, non-profit companies, and government organizations from all over the world.
They found that in cases where the fraud was detected by accident, the fraud lasted an average of 32 months and cost the company a whopping $325,000. But in cases where the fraud was detected through a tip, it lasted a median of 18 months and only cost $149,000. That’s a whole lot of time and money saved just by blowing the whistle.
One of the co-authors of the study stressed the importance of whistleblower hotline, saying that “there’s a lot more fraud that could be detected if organizations were harnessing this one mechanism.”
The most effective way to protect your workplace from fraud is still through active reporting and review systems. Companies that have an active monitoring program have significantly fewer losses, as they are usually able to catch the crime earlier.
So get harnessing this power today – it’s never too late.