According to the Association of Certified Fraud Examiners (ACFE), fraud and employee theft happen when good accounting and non-accounting controls are not in place.
A recent ACFE survey of a wide range of business types and sizes indicated that nearly 500 of the 2,000 surveyed suffered losses of over $1,000,000. The average small business loss was reported to be $160,000 which is hardly chump change in today’s tight profit and cash environment.
Other findings of the ACFE study are equally eye opening:
- The average theft by an employee took place over 18 months period.
- In many cases, it wasn’t discovered by proactive measures, rather by a fellow employee tipping off management that something funny was going on.
- The most common tipsters reveled in the ACFE study were “ex-lovers, ex-employees, and ex–business partners.”
- Many types of fraud were discovered including money laundering, inflation of sales figures, and inventory fraud.
- Businesses should take this risk as seriously as remembering to lock their doors at night. The ACFE says a surprise audit can cut out 51% of employee fraud.
- Having duel controls over activities like cash deposits, and making sure there is a daily cash balancing process in place are equally important.
- One way employee fraud is easily detected in small businesses is by having all bank and credit card statements come to the owner of the business. Since most statements are now electronically transmitted, having the owner receive a copy is not hard. Owners need to spend time when each statement comes to their desk to scrutinize expenses and let employees with spending and cash management authority know they are looking at all the statements.
- Another way to stem the tide of employee theft is to have security cameras in various strategic places in your business. Directly above all cash stations in a retail business is a good place as are all ingress and egress locations.
Across all companies including small, mid-sized and large companies, the ACFE reports that employee fraud accounts for over 5% of gross revenue. For highly leveraged low profit businesses this can mean the difference between being profitable and having losses for the year. Some businesses simply can’t recover.
It is never too early to discover places in your company where you can strengthen both accounting and non-accounting controls. Your CPA can often be a good source of general information. Often local police crime prevention departments will go into a business and help an owner identify his weaknesses, typically at no cost to the owner.
If these statistics are sobering, perhaps today is the day to start strengthening your business.
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