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Report: Small biz susceptible to fraud

Organizations around the world lose an estimated five percent of their annual revenues to fraud, according to a survey of Certified Fraud Examiners (CFEs) who investigated cases between January 2008 and December 2009. Applied to the estimated 2009 Gross World Product, this figure translates to a potential total fraud loss of more than $2.9 trillion.

According to the report, small businesses are especially vulnerable to occupational fraud. These organizations are typically lacking in anti-fraud controls compared to their larger counterparts, which makes them particularly vulnerable to fraud.

The Association of Certified Fraud Examiners (ACFE) published the results of the survey in its 2010 Report to the Nations on Occupational Fraud & Abuse. For the first time, the Report includes global data among the 1,843 cases of fraud that were studied.

Information from CFEs in 106 nations was compiled to develop the benchmarking statistics on occupational fraud losses, detection methods and perpetrators.

“Fraud knows no boundaries, and anti-fraud professionals worldwide face more challenges than ever in detecting and combating it,” said ACFE President James D. Ratley, CFE.

Key findings from the 84-page Report include:

• Fraud schemes are extremely costly. The median loss caused by the occupational fraud cases in the ACFE study was $160,000. Nearly one-quarter of the frauds involved losses of at least $1 million.

• Schemes can continue for months or even years before they are detected. The frauds in the study lasted a median of 18 months before being caught.

• Occupational fraud is a global problem. Though some findings differ slightly from region to region, most of the trends in fraud schemes, perpetrator characteristics and anti-fraud controls are similar regardless of where the fraud occurred.

• Tips are key in detecting fraud. Occupational frauds are much more likely to be detected by tip than by any other means. This finding has been consistent since 2002, when the ACFE began tracking data on fraud detection methods.

• High-level perpetrators do the most damage. Frauds committed by owners and executives were more than three times as costly as frauds committed by managers, and more than nine times as costly as employee frauds. Executive-level frauds also took much longer to detect.

The Report also details findings such as how organizations were affected based upon industry, how the implementation of anti-fraud controls affected exposure to fraud, the breakdown of fraud statistics by geographical region and the most common behavioral traits observed among fraud perpetrators.

The 2010 Report to the Nations is available for download online at the ACFE’s web site: ACFE.com/RTTN.  The Report is in PDF format.


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