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Cost of Fraud

Posted By George (Clint) Frederick CPA PLLC, George Frederick CPA PLLC, Thursday, March 31, 2016

March 30, 2016, the Association of Certified Fraud Examiners, released its Report to the Nations on Occupational Fraud and Abuse.  Occupational fraud is defined as Employee Fraud through misuse of their position for personal enrichment.  It could involve embezzlement, fraudulent financial statements, and asset appropriation for personal use, collusion with vendors for kickbacks or any number of imaginative schemes.

With the report was a summary of the cost of fraud. Some highlights:

  • A typical organization loses 5% of its revenue
  • The median loss is $150,000
  • Total loss from fraud is $6.3 billion
  • Over 23% lost $1 million


Type of fraud:

  • Asset misappropriation loss    $125,000
  • Corruption loss                        $200,000
  • Financial statement fraud      $975,000


The people committing the fraud:

  • Employee fraud           $65,000
  • Manager                     $175,000
  • Executive or owner      $703,000

Number of people involved in fraud event:

  • One person                 $65,000
  • Two people                 $150,000
  • Three people               $294,000
  • Five or more              $633,000

 

Organizations that do not have fraud controls in place suffer twice as much fraud as those that have fraud controls.  Fraud amounts on companies with less than 100 employees had the same as that incurred by larger companies; however, the fraud loss on small business had a much greater impact on the organization.  Most fraud was uncovered through tips and companies with hotlines.  The longer a fraud lasts the greater the financial loss.  Fraud loss on privately owned companies is greater than on public companies. Most fraud loss is not recovered. 

 

Prevent fraud before it happens.

Tags:  Accounting  employees  fraud  management  small business 

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