The Facts Behind Fraud

The Association of Certified Fraud Examiners (ACFE) estimates that 5% of revenue is lost to fraud and embezzlement every year. Applied to the U.S. GDP, this amounts to $730 billion every year!

Average losses for small U.S. business from fraud.

Surprisingly, small organizations with fewer than 100 employees suffer the highest losses from fraud. Median losses for small U.S. businesses average $150,000, compared to only $80,000 for U.S. large businesses.

These and the following alarming statistics are drawn from the ACFE 2012 Report to the Nations on Occupational Fraud & Abuse (download a free copy at

Method to the Mad Grab

Some types of fraud are more prevalent in small businesses: check tampering, skimming, payroll, larceny and expense reimbursements. These types of schemes represent check writing, cash collections and payroll functions, which in small businesses, are more likely to be performed by one individual and subject to less oversight.

Under Control?

Small businesses tend to have fewer controls than large companies, which is no surprise. Yet, the ACFE survey demonstrates that this gap exists even for controls that cost little to implement, like management review of internal controls, anti-fraud policies, whistleblower hotlines, surprise audits and job rotation/mandatory vacations.

Money Rescue Hotline

Reduction in median loss for companies with hotlines and other types of low-cost controls.

Controlling fraud doesn’t have to be costly. ACFE research shows that almost half of frauds are discovered through a tip from an employee, vendor or other person. In fact, hotlines are consistently effective at reducing losses from fraud; median loss for companies with hotlines was 59% less than at companies without a hotline. These results were similar for other types of low cost controls, like surprise audits, anti-fraud training, management review. Similarly, the fraud schemes were identified more quickly at companies with such controls in place.

Trusted Criminals

Most frauds are committed by trusted, long-term employees with access to money. In the framework of a business, 80% of all fraud and 95% of losses were attributable to employees in one of six departments: accounting, operations, sales, executive/management, customer service and purchasing. This is no surprise, since employees in these departments have access to cash or can override controls. Cases perpetrated by owners and/or high-level managers were more costly and took longer to detect. Losses also tended to increase with tenure.

First Time for Everything

Most perpetrators are first time offenders: 87% had never been charged or convicted of a prior offense. Only 8% of perpetrators had been punished by a previous employer for a fraud related offense and only 7% had been terminated by a previous employer for fraud-related conduct.

Keep an eye out. Learn how to spot red flags.