Combating Occupational Fraud and Abuse – Report Finds Big Problems for Businesses of All Sizes

The largest global study on occupational fraud, “2018 Report to the Nations on Occupational Fraud and Abuse,” was released last week by the Association of Certified Fraud Examiners (“ACFE”).  It outlines major fraud concerns for businesses worldwide, and particularly small businesses.

Are you properly protected from fraud?

The report is based on thousands of fraud cases reported by fraud examiners worldwide.  It covers multiple industries and explores the costs, schemes, victims and perpetrators of fraud.   On the ACFE’s website, you can quickly explore what’s inside the report (  In summary, the main findings were:

  • Internal control weaknesses were responsible for nearly half of all fraud cases
  • Median losses are far greater when those committing fraud collude with one another
  • Small businesses lost almost twice as much per scheme due to fraud
  • Those companies with proper anti-fraud controls in place had lower fraud losses, and quicker detection
  • Data monitoring analysis and surprise audits were correlated with the largest reduction in fraud loss and duration
  • A majority of businesses who were victim to fraud recovered nothing! The more victims lose, the less likely they are to make a full recovery.

More shockingly…there was $7 Billion in total losses due to fraud, $130,000 median loss per case, and 22% of cases caused losses of $1 Million or greater!

As the report states, fraud can be especially devastating to small businesses as they have less resources to prevent and detect fraud.   It is important to understand that small businesses face different risks than larger organizations.

How do small businesses differ from large businesses?

  • 44% of fraud at large businesses were detected by a tip, but only 29% at small businesses
  • 25% of fraud cases were caused by lack of internal controls at large businesses, but almost 42% at small businesses
  • Fraud occurred more frequently at small businesses
  • Owners and executives were more likely to commit fraud at a small business resulting in median losses of $850,000

What can your business do to combat fraud?

  1. Have proper internal controls in place. The primary internal control weaknesses that contributed to occupational fraud were the following:
    1. Lack of internal controls
    2. Override of existing internal controls
    3. Lack of management review
    4. Poor tone at the top
  2. Implement proper anti-fraud controls. The most common are:
    1. Code of conduct
    2. External audit of financial statements
    3. Internal audit department
    4. Management certification of financial statements
    5. External audit of internal controls over financial reporting
  3. Run background checks. Especially on those you are hiring to work for departments that pose the greatest fraud risk, including:
    1. Accounting
    2. Operations
    3. Executive / upper level management
    4. Sales
    5. Customer Service
    6. Administrative Support
    7. Finance
    8. Purchasing

Combatting fraud also means having your eyes and ears open to behavioral red flags.  The ACFE has identified 6 of the most common behavioral red flags of those who commit fraud, as:

Are you aware of the most identified red flags of fraud?

  1. Living beyond their means
  2. Financial difficulties
  3. Unusually close association with vendor / customer
  4. Control issues, unwillingness to share duties
  5. Divorce / family problems
  6. “Wheeler-dealer” attitude

As you can see from the report’s findings, fraud is a major concern for businesses, and can have a life changing impact on a business’s future success.  The investment made to combat fraud by making sure your internal controls are current, and that your company has proper anti-fraud controls in place, is instrumental in the growth and success of your business.   To find out more on how DKB can help you take the necessary steps to combat or detect fraud contact a member of our forensic accounting and litigation support team today.