Fraud Will Cost U.S. Businesses $994 Billion This Year

U.S. organizations lose about seven percent of their revenues to fraud, according to the Association of Certified Fraud Examiners. When compared to the projected U.S. Gross Domestic Product for 2008 — seven percent equates to $994 billion.

In their just released Report to the Nation on Occupational Fraud and Abuse, the Association notes that the average case cost a business $175,000. In a quarter of 959 cases used to compile the study, the loss was $1 million or more. The most costly type of fraud was financial statement fraud — more commonly known as cooking the books — which cost organizations an average of $2 million.

Not surprisingly, smaller businesses suffered the greatest losses. I say not surprisingly, because smaller businesses normally can't afford dedicated resources to detect and prevent fraud. For small businesses, the average case studied cost about $200,000.

The most common type of fraud found in the study was corruption and the second most common was fraudulent billing. The average scheme wasn't detected for two years and the most common form of detection was from a human being tipping off management, or a business owner.

In the small business fraud model, check tampering was a common cause, also.

Businesses that had fraud controls did a lot better than businesses that didn't, according to the study. For instance, businesses that did surprise audits suffered an average loss of $70,000, while businesses that didn't suffered an average loss of $207,000. Other controls that made an impact cited in the report are anonymous hot lines, training management to detect fraud and hiring dedicated personnel to detect and resolve fraud.

According to the report, fraud perpetrators can be identified by the behaviors they display. These include living beyond their means, financial difficulties or even by trying to please their boss by making it appear that the business is doing better than it really is. Please note that in the case of larger corporations, the word "boss" can mean investors or shareholders.

Please note there are many more signs of dishonesty and recommended controls for small business owners. Another good resource to read about these subjects is put out by the National Association of Veterans' Research and Education Foundation.

Article Author: Ed Dickson

Having worked around financial crimes for a number of years, I noticed they seemed to be on the rise. One reason for this is technology, which grows more rapidly than laws designed to protect us from it. …

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