Five Percent of Revenues Worldwide Lost to Fraud

Small businesses most at risk

Organizations around the world lose an estimated 5% of their annual revenues to fraud, according to a survey of Certified Fraud Examiners, who investigated cases between Jan. 2010 and Dec. 2011. Applied to the estimated 2011 Gross World Product, that figure translates to a potential total fraud loss of more than $3.5 trillion.

The Association of Certified Fraud Examiners published the results in its 2012 Report to the Nations on Occupational Fraud and Abuse. The study includes global data among the 1,388 cases of fraud that were studied.

Key findings from the report include:

• Fraud schemes are extremely costly. The median loss caused by the occupational fraud cases in the study was $140,000. More than one-fifth of these cases caused 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.
• Tips are key in detecting fraud. Occupational fraud is more likely to be detected by a tip than by any other method. The majority of tips reporting fraud come from employees of the victim organization.
• 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.
• High-level perpetrators do the most damage. The median loss among frauds committed by owner/executives was $573,000, the median loss caused by managers was $180,000, and the median loss caused by other employees was $60,000.
• Small businesses face increased risk. The smallest organizations in the study suffered the largest median losses. These organizations typically employ fewer anti-fraud controls than their larger counterparts, which increases their vulnerability.

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. Some of the most common red flags identified in the report are living beyond means, financial difficulties, and unusually close association with vendor/customer.

SAVE THE DATE!

Don’t miss CBIA’s program Fraud Prevention and Your Business, Wednesday, Dec. 5, from 8:30 to 11:30 am at The Marriott in Farmington. (Cost: $129 for CBIA members; $169 for nonmembers.)