Small Businesses Lose $200K to Fraud, Survey Reports

August 12, 2008

U.S. organizations lose an estimated 7 percent of their annual revenues to fraud – but damages are more among small businesses, according to a new study.

The median loss suffered by organizations with fewer than 100 employees was $200,000, higher than the median loss for any other category among fraud cases detailed in the survey, according to a report by the Association of Certified Fraud Examiners (ACFE).

The study also found that check tampering and fraudulent billing were the most common of all small business fraud schemes. In fact, more than one-fourth of all small business frauds in the survey involved check tampering, making it a much more common method of fraud than in larger organizations. Check tampering commonly occurs in situations where duties over the cash disbursement function are not separated.

ACFE, which provides anti-fraud training and education, published the results of the survey in its 2008 Report to the Nation on Occupational Fraud & Abuse. The ACFE’s benchmarking data is compiled from 959 cases of occupational fraud that were investigated by Certified Fraud Examiners between January 2006 and February 2008.

The Report to the Nation is available for download online at the ACFE’s web site:

The ACFE recommends a few simple steps a small business can take to identify and effectively manage potentially costly fraud losses.

1. Be proactive. Establish and maintain internal controls specifically designed to prevent and detect fraud. Adopt a code of ethics for management and employees. Set a tone at the top that the company will not tolerate any unethical behavior.

2. Establish hiring procedures. Every company, regardless of size, can benefit from formal employment guidelines. When hiring staff, conduct thorough background investigations. Check educational, credit and employment history, as well as references. After hiring, incorporate evaluation of the employee’s compliance with company ethics and antifraud programs into regular performance reviews.

3. Train employees in fraud prevention. Once carefully-screened employees are on the job, they should be trained in fraud prevention. Are employees aware of procedures for reporting suspicious activity by customers or co-workers? Do workers know the warning signs of fraud? Ensure that staff know at least some basic fraud prevention techniques.

4. Conduct regular audits. High risk areas, such as financial or inventory departments, are obvious targets for routine audits. Surprise audits of those and all parts of the business are crucial. ACFE’s Fraud Prevention Check-up can help to identify fraud risks and establishing a strategy to prevent such losses.

5. Call in an expert. For most firms, fraud examination is not a core business component. When fraud is suspected or discovered, enlist the anti-fraud expertise of a Certified Fraud Examiner (CFE).

Source: Association of Certified Fraud Examiners,

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