Occupational fraud begins with weak internal controls, and can wreak havoc on your business if you fall victim. The Association of Certified Fraud Examiners (ACFE) has published another biennial report providing details on the causes of different types of fraud, how often certain events occur and how internal controls can guard against these crimes.

What is a white-collar crime?

A white-collar crime is a non-violent act committed by someone for their own financial gain. White-collar criminals are typically business managers, office workers, or executives. Some well-known examples of white collar crimes?—Embezzlement, money laundering, corporate fraud, and securities fraud.

How much do these crimes cost our businesses?

The study shows, consistent with the previous study conducted two years ago, that:

• The typical organization loses 5% of revenues every year due to fraud. (About $895 billion was lost in the U.S. last year.)
• For every $1 million of revenues your business earned last year, a starting point estimate for how much you might have lost to occupational fraud is $50,000 (5% of $1 million).

A few things you should know about white-collar fraud:

• NO organization is immune to white collar crime!
• Many crimes go undetected, so the ACFE study is not entirely complete
• Some fraud losses are indirect, including lost productivity, status damage and the loss of business in the future.
• Corruption is number 1 on the list of “Top 5 Fraud Schemes” in the ACFE’s study for large and small companies (40.2% for companies with 100+ & 29.9% for companies with less than 100).
• Other frequent crimes for all size companies include, billing fraud, check tampering, skimming, and non-cash schemes too.
• Background checks are not actually an effective method of fraud detection. Many white-collar crimes are committed by individuals without criminal records.

Preventive Measures

To capitalize most effectively on your antifraud spending, consider these preventive measures:

• Strong internal controls- You need to strengthen any weak internal controls to cut any chances criminals have to steal your assets. Weak internal controls are cited by ACFE as the leading cause of white collar crimes.
• Training- Without proper training, your employees will not know how to detect fraud from within or outside the company. By educating your staff on some common red flags associated with fraud, you will be able to better detect and prevent fraud.
• Management’s help- Management must be heavily involved in the fight against white collar crime. Taking the time to review controls and correct weaknesses is essential to the betterment of your fraud detection system. You don’t want to be sending the message that you don’t care, or that committing a crime in your organization is simple.
• Hotline- Many businesses have set up anonymous fraud reporting hotlines. Though the cost and maintenance of such a system has deterred many businesses from adopting one, it can help to uncover fraud, which can, in turn, save your business from the hefty losses involved in such crimes.

The key to warding off fraudsters in your organization is to maintain a vigilant “Anti-Fraud” stance that everyone in your business is aware of and supports. If you do suspect fraud within your company, your financial and legal advisors can help reinforce your internal controls and investigate any suspicious activity.

Contact us for more information on this issue.