Art1April2011

Business fraud is a real threat to businesses today.  No business, large or small, is immune to fraud schemes; not even yours.  You may not even be aware of ineffective schemes that were summarily thrown away.  But some frauds will stick to your business and then grow.  Losses due to fraud are devastating and have a long-lasting effect on your company.

Not being understood or recognized as a threat, the effects of fraud on the performance of a business have been underestimated for generations, and the costs associated with fraud have been understated.  Efforts to prosecute fraudsters in Canada proved impossible in 1998, as I was told that fraud is a civil matter between the parties.

Today the impact of fraud on business is widely recognized.  Headlines scream, Woman Embezzles $250,000; Church worker Takes $400,000, xxxx, a popular restaurant is forced into bankruptcy due to internal theft.  Fraud reduces profits, affects growth decisions, causes businesses to fail, accelerates job loss, and damages our economy.  Fraud kills off vibrant and thriving business and diminishes our quality of life.

In 2008 and again in 2009 the Association of Certified Fraud Investigators published the results of a study of fraud investigations that occurred from January, 2006 to February, 2008.  Here are some of the more interesting findings:

  • U.S. businesses lose about 7% of their annual revenues to fraud.
  • Business fraud schemes are very costly.
    • Median loss was $175,000
    • More than 25% involved loss of at least $1,000,000.
  • Business frauds frequently continue for years before being detected.
  • The most common schemes were internal frauds.
    • 24% were false billing schemes.
  • Business frauds are much more likely to be detected by tips than by audits, internal controls, or any other means.
  • Use of internal controls does lessen the impact of fraud.
  • The largest losses occurred in the following industries:
    • Manufacturing - $441,000
    • Banking  - $250,000
    • Insurance - $216,000
  • Small businesses are especially vulnerable to fraud.
    • Check tampering and fraudulent billings were the most common schemes.
  • Lack of adequate internal controls is the most common reason that fraud was allowed to occur.
  • Over ¾ of businesses fortified their internal controls after discovering they had been defrauded.
  • Most business frauds are committed by the accounting department or upper management.
  • Business frauds are committed by first time offenders.
  • The most commonly cited behavior red flags were employees living beyond their means.

Business fraud most often refers to someone using their position in a company or his or her occupation for their own personal enrichment.  These frauds range from stealing company supplies to financial statement frauds.  Beware also of fraud schemes perpetrated by outsiders that target businesses.  Currently we are experiencing a rash of fraud schemes of all types being thrown at businesses to see if any stick.  You need to protect your business!  Cadfael Investigative Group, Inc. can help you detect, locate and eradicate fraud from your business.  We have professionally investigated fraud for 35 years, and we will show you how to proactively safe guard your business assets from schemes designed to take your money and reduce your profit. Embezzlement is a severe problem that all business organizations must address.  Cadfael offers the experience and insightful strategy you need to deal with this ongoing threat.

If you would like to discuss business fraud in more detail, call Cadfael, Minnesota’s Premier Fraud Investigator at (763) 694-6086.  We help you keep more of your profits.