Hand holding Hundred dollar bills

Fraud- It Can Happen To ANY Business

29 Oct 2014

What if I suspect someone is committing fraud in my company? Nothing is more frightening than to believe that someone in your trusted family of employees may be committing fraud against your company. Unfortunately, it is happening more and more and the financial implication may be substantial, which may imperil the future of your business.

According to the 2014 Global Fraud Study’s Report to the Nations on Occupational Fraud and Abuse, authored by the Association of Certified Fraud Examiners, the results are disturbing:

  • 5% of revenues are lost to fraud — applied to estimated Gross World Product equates to approximately $3.7 trillion in loss due to fraud,
  • Median loss is $145,000,
  • Median duration, from fraud commenced to detection, is 18 months
  • Smaller organizations tend to suffer disproportionately larger losses due to fraud, and
  • Recovery rates – 60% of the organizations recover nothing; 14% made a full recovery.

If you suspect that someone is committing a fraud, your best course of action is to act immediately, and call in a trained specialist; a Certified Forensic Examiner (“CFE”)/Investigator and be prepared to assist in any way possible. However, you need to go into this process with your eyes wide open. See the list above and you will realize that fraud is a serious business. Recoveries are low, but the real damage occurs to the psyche of the business owner.

Why is this happening? Many business owners that have confronted fraud in their business have wrestled with this gut-wrenching, spirit-breaking question. When the perpetrator is a “trusted employee,” the pain and anger is worse.

Many frauds are committed by the “trusted bookkeeper,” that is, the person who grew up in the business and over the years has taken on more and more responsibility. Then one day this “trusted bookkeeper,” who handles all aspects of your business, begins paying their personal bills through the business, or starts skimming money from the business, or sets up a ghost employee so that they can double their salary.

Who you gonna call…Ghostbusters? Well, not really, but an experienced CFE highly trained in investigations will be the better choice. A seasoned CFE will also be adept at interviewing, which is an important skill. A thorough forensic examination will require a number of interviews of staff at every level of the organization to determine who is committing the fraud. A seasoned CFE will also be meticulous in gathering evidence, which will be used to prosecute the perpetrator.

Another benefit to engaging a CFE is that they are trained in preparing and instituting fraud detection and deterrence programs, which can be instrumental in reducing the risk of fraudulent activity in your business. Unfortunately, tough economic times breed dishonest employees in any business. Being vigilant about internal controls, adherence to proper segregation of duties, and developing open channels of communication allowing others to inform you about suspicious activity are all tried and true methods to assist you in detecting and deterring fraud in your business. If you have suspicions in your business, we at Cerini & Associates are always here to help you.