The Association of Certified Fraud Examiners Releases Five Ways Small Businesses Can Prevent Fraud Losses
AUSTIN, Texas--(www.AllPayNews.com)--U.S. organizations lose an estimated 5 percent of annual revenues to fraud. That's $638 billion based on the estimated U.S. Gross Domestic Product for 2006.
And the news is even worse for small businesses.
The Association of Certified Fraud Examiners (ACFE), in its 2006 Report to the Nation on Occupational Fraud and Abuse, found that small companies suffer disproportionate fraud losses.
The median loss by organizations with fewer than 100 employees was $190,000 per incident, notes ACFE's biennial study. That's higher than the median fraud-induced loss in even the largest organizations.
Small businesses face another challenge when it comes to dealing with fraud. Since smaller companies must keep a close eye on the bottom line, they are unlikely to have an internal audit department. ACFE's 2006 Report found that less than 20 percent of small organizations had internal audit departments, and less than 10 percent of small organizations had anonymous fraud reporting systems.
There are, however, some simple steps a small business can take to help reduce its potential losses due to fraud:
1. Be proactive.
Establish some method of internal control. Adopt a code of ethics for management and employees. Set a tone at the top that demonstrates that your company will not tolerate any unethical behavior. Create a fraud policy that sets forth what conduct is expected from employees, what actions are prohibited, how fraud can be reported, and the punishment for noncompliance.
2. Establish hiring procedures.
Every company, regardless of size, can benefit from formal employment guidelines. When hiring staff, conduct thorough background checks. Verify educational and employment history, as well as references. After someone joins your staff, incorporate evaluations of the employee's compliance with company ethics and antifraud programs into regular performance reviews.
3. Train your employees in fraud prevention.
Once your carefully screened employees are on the job, make sure they are trained in fraud prevention. Your staff serves as your company's eyes and ears. ACFE research has repeatedly found that employee information is a prime way that companies discover and halt fraud. Do your workers know warning signs of credit card fraud, such as a customer pulling a card from a pocket instead of a wallet? What about general retail fraud red flags, such as a buyer making random item purchases or asking about the floor limit? By ensuring that your staff knows at least some basic fraud prevention techniques, you'll establish a first line of anti-fraud defense.
4. Conduct regular (and irregular) checks.
High-risk areas, such as your financial or inventory departments, are obvious targets for routine checks. But you should also conduct surprise reviews of these and other parts of your business. By searching out potential fraud, you can find any incidents early or, even better, prevent them completely. A good starting point in identifying your fraud risks and establishing a strategy to prevent such losses is ACFE's Fraud Prevention Check-up, found online at the ACFE web site. (http://www.acfe.com/documents/Fraud_Prev_Checkup_IA.pdf).
5. Call in an expert.
As a small business owner, you depend on your strengths to ensure your company is successful. For most firms, fraud examination is not a core business component. That's why if you find or suspect fraud, it's imperative to enlist the anti-fraud expertise of a Certified Fraud Examiner (CFE). The CFE credential is recognized by businesses and governments worldwide as the standard for fraud prevention and detection. CFEs on six continents have investigated more than one million suspected cases of civil and criminal fraud. To locate a CFE in your area, contact the ACFE.
You can find additional anti-fraud tips and strategies on the ACFE website. ACFE also offers a free CD ROM, Fraud Prevention Resources, that details valuable fraud prevention techniques.
About the Association of Certified Fraud Examiners:
The Association of Certified Fraud Examiners (ACFE) is the leading anti-fraud association in the world, providing knowledge and training used to reduce the occurrence of corporate fraud. Together with more than 40,000 members, the ACFE is reducing fraud and inspiring public confidence in the integrity and objectivity within the profession. In addition, the ACFE offers its members the unique opportunity for professional certification as a Certified Fraud Examiner.
Special note for editors and reporters:
ACFE's 2006 Report to the Nation on Occupational Fraud and Abuse is available online at http://www.acfe.com/documents/2006-rttn.pdf.
Association of Certified Fraud Examiners, Austin
Scott Patterson, 512-478-9000 or 800-245-3321