No one needs to remind managers about the costs of fraud and abuse in business.  The Association of Certified Fraud Examiners estimated in its 2012 Report to the Nations on Occupational Fraud and Abuse that the typical organization loses 5% of its revenues to fraud and abuse annually.  Median losses per occurrence were $140,000, and the typical scheme is in place for 18 months before it is discovered.  Furthermore, no organization is immune.  Religious organizations, governments and professional organizations, just to give a few examples, reported median losses of $85,000, $100,000 and $115,000, respectively.  Small organizations, those with less than 100 employees, carry the brunt of this load, having been targeted in 31.8% of cases reported.

Audits and whistle-blower programs can be effective at detecting fraud schemes already occurring, but by that time the loss has occurred.  Once the cash is out the door, the Report finds that it is unlikely to be recovered.  In fact, 48.7% of cases in the Report had no recovery, and another 15.0% had recoveries of less than 25%.

A vigorous fraud prevention program can assist organizations in limiting the losses associated with fraud and abuse.  The best part is that many of the steps in a well-designed fraud prevention program are inexpensive.  Some of them, such as segregation of duties or robust internal controls, are free.  Others, such as a tip hotline, carry a minimal monthly cost.  The perception of detection will deter many would-be fraudsters, so anything that can increase this perception will have at least some effect.

At RC Holsinger Associates, we can help you design a fraud prevention program that works in your particular circumstances.  We offer fraud awareness seminars for your management or employees, help you design internal controls, or set you up with a hotline to report suspicious behavior.  We can teach you the red flags of fraud, and the type of individual behaviors that were shown to be present in 81% of all fraud cases.  And we can perform a fraud check-up on your organization, to point out areas of risk.

For more information about our fraud prevention services, please contact Michael Lauer at 1-800-570-4272, ext. 305.

By Michael P. Lauer, CPA, CFE


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