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Report: Small biz susceptable to fraud

Small businesses are particularly vulnerable to fraud, according to a survey of Certified Fraud Examiners (CFEs), who investigated cases between January 2008 and December 2009. The study found that the median fraud loss for all U.S. organizations is $105,000, with billing and corruption schemes the leading types of fraud reported in U.S. cases and others throughout the world.

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.

With regard to small business, the report indicates that these organizations have far fewer controls in place to protect their resources from fraud and abuse than larger organizations. The report recommends that manages and owners should focus their control investments on the most cost-effective mechanisms, such as hotlines and setting an ethical tone for their employees, as well as those most likely to help prevent and detect the specific fraud schemes that pose the greatest risks to their businesses.

Other findings of the report include:

• Fraud schemes among U.S organizations are costly. Among the 1,021 U.S. cases in the study, the median fraud loss was $105,000. Billing schemes were present in 27.6% of these cases, while corruption was reported in 21.9% of cases.

• Fraud committed from the top of an organization is the most damaging. While a large percentage of U.S. frauds in the study were committed by lower-level employees (46.2%) and caused a median fraud loss of $50,000, it was frauds committed by owners/executives (17.1%) that did the most damage with a median loss of $485,000. Frauds committed by managers (36.7%) had a median loss of $150,000.

• A slight gender gap still exists in U.S. fraud cases. More than 57% of the U.S. frauds in the study were perpetrated by males. However, this gender gap is narrower than what was found in cases from most other regions in the world, most notably Asia (86.7% male) and Europe (82.1% male).

• More frauds are detected by tip than by other means. In a trend reflected worldwide, the impact of anonymous fraud hotlines is clear, as 37.8% of the U.S. frauds in the study were detected by tip, followed by management review (17.1%) and internal audit (13.7%).

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, additional breakdowns 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.

For more information about the ACFE, visit www.ACFE.com.


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