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Building business trust - a useful insight on sources of risk and fraud

The 2018 ACFE (Association of Certified Fraud Examiners) “Report to the Nations” global study on occupational fraud has, as always, some valuable risk insights – particularly notable this time for smaller companies.

  • Businesses with <100 employees lost almost twice as much per scheme (average $200,000) as that of larger companies

  • The most common source of detection is tip-offs (40%), with half of those from employees and 1/3rd from outside parties

  • Frauds run on average for 16 months before detection

  • Average losses more than double when fraudsters collude

  • Prosecutions have declined by 16% over the last 10 years – mostly because of the fear of bad publicity

  • 89% of fraud relates to asset misuse (cash, false accounts, stock) but fraud related to financial statements is 7 times higher per loss

  • It is nearly impossible to measure the amount of fraud prevented by a specific control. However there is a correlation between controls and lower fraud losses - for example, the use of proactive data monitoring and analysis, and surprise audits was associated with a more than 50% reduction in fraud losses

The immediate action for any small business is to review setting up some form of anonymous hotline and to encourage everyone to say something if things don’t look right. Communicated in the right way, that can empower a smaller business, emphasise trustworthiness as a key value, and avoid the pain and reputational impact of fraud.

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