Fraud Controls Lacking at Organizations with Fewer than 100 Employees

Organizations with fewer than 100 employees significantly trail their counterparts in the implementation of formal antifraud controls, according to a worldwide survey by the Association of Certified Fraud Examiners (ACFE).  Antifraud experts say formal controls can help small businesses prevent and detect instances of fraud that, left undiscovered, could lead to costly losses and possibly to bankruptcy.  Antifraud controls don't have to be expensive. Experts say instituting a formal code of conduct, having management review processes and controls, and providing antifraud training to employees are cost-effective ways to help small businesses with limit resources prevent fraud.

The median loss caused by the occupational fraud cases in the ACFE survey was $140,000 and more than one-fifth of the cases caused losses of at least $1 million.  Organization with job rotation and mandatory vacation policies had a significant reduction in the average duration of fraud before detection.  Antifraud measures such as code of conduct, employee training programs, and formal management review of controls and processes can be implemented at marginal costs in many small organizations. 

Some of the larger behavioral “red flags” of perpetrators:

  • Living beyond their means
  • Financial difficulties
  • An unusually close association with a vendor or customer
  • Control issues or unwillingness to share job duties
  • Divorce or family problems
  • Addiction problems

Talk to your audit team about codes of conduct and antifraud measures that you can put into place.

Source: ACFE 2012 Report to the Nations on Occupational Fraud and Abuse,