Report: Cost of Workplace Fraud Nears $1 Trillion!

Posted by Matt Simon on Dec 22, 2010

If you ever worry about the risk of being defrauded, here's a number to take your breath away: almost a trillion dollars per year.

That's how much businesses lose to occupational fraud - inside jobs, usually by employees. Shocking, isn't it? It represents about 7% of total company revenues.

These numbers come from the experts - the Association of Certified Fraud Examiners (ACFE) - in their latest annual report.

Not surprisingly, the firms that lose the most are the ones that have taken the least action to try to prevent employee fraud.  And the crime is disproportionately worse in small and medium sized businesses, which are the most vulnerable.

You won't be surprised to know that most employee fraud originates in the accounting department, but it's distressing to learn that second place goes to executives and management, followed by operations and sales departments.

And although you can actually insure against loss through fraud, I'm sure you'd agree that taking some smart and simple steps to prevent the crime is your best starting point - and the best way of keeping insurance premium as low as possible!

Nothing's fool-proof but we've compiled this list of a dozen things you can start to do right now to virtually eliminate the risk of employee fraud - or to quickly expose the culprits:

  1. Build your company culture on integrity. Be a role model of honesty yourself.
  2. Be seen to deal quickly and firmly with any employee misconduct whatsoever.
  3. Don't allow one employee to be responsible for both billing and handling payments.
  4. Insist that all checks above a fairly low amount have two signatures.
  5. Never sign blank checks, or checks for new suppliers without verifying them.
  6. Tell your bank not to permit transfers between accounts without your say-so.
  7. Carefully screen all new employees, checking up with references and monitoring them.
  8. Keep an eye on disgruntled employees or those who seem to be living above their means.
  9. Regularly check financial statements yourself - take a course if you're not up to scratch.    
  10. Conduct surprise audits - with no warnings, or when your bookkeeper is on vacation.
  11. Use sequential numbering on checks, purchase orders, invoices, so it's easy to spot gaps.
  12. Run a test by submitting a money order or check as an unspecified payment.

It's important to let your employees know of these policies - especially items 2 and 12 - since that's the easiest way to discourage fraud in the first place.

You might also want to implement - and tell everyone about it - an anonymous "whistleblower" policy that enables suspicious employees to report their concerns to you.

With a little bit of forethought, you can slash the likelihood of fraud in your business - even the ACFE figures show that.

If you're not already doing it, there's no time like the present to tackle our Top 12 list!

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