Fraud has affected businesses of all sizes and continues to do so. Indeed, an unfortunate byproduct of advances in technology means some fraudulent activities are both easier to perpetrate and harder to detect.
Of course, the rise in fraud has seen a commensurate improvement in anti-fraud tech such as tamper-proof voucher checks and higher levels of system security through encryption and restricted access amongst other methods.
Even so, the battle against the fraudsters is ongoing and affects the SME (small or medium enterprise) just as much if not more so than the larger corporation.
The numbers make grim reading
Each year the ACFE (Association of Certified Fraud Examiners) produces a report on global fraud that has become an industry-respected reference; it provides a valuable resource as to how fraud is committed, who by, how it’s detected and how businesses and organizations can protect themselves against it.
The most recent ACFE report – for 2018 – found that $7 billion was lost to fraud in a total of 125 countries across 23 industries, with the average loss per case being $130,000.
The above basic figures are concerning enough but, somewhat surprisingly, smaller businesses were affected more in monetary terms by fraud than their larger brethren.
In fact, small businesses – those with fewer than 100 employees – lost almost twice as much as larger concerns, to the tune of $200,000 (so above the average sum per fraud case) compared to $104,000.
Smaller business losses possibly due to less fraud protection
The reasons smaller businesses experience higher average losses than larger ones could be down to two basic factors:
- Fraud protection isn’t as high on their agenda as it might be for larger organizations so they’re seen as an ‘easier target’
- Their fraud protection is less comprehensive and sophisticated than that of larger organizations
This is borne out by another finding of the ACFE report; internal control weaknesses accounted for nearly half of all frauds. Smaller concerns could be particularly at risk here if they haven’t gone to the same lengths as a larger one to institute fraud control and higher levels of security.
Data monitoring, audits, and tip-offs
Larger concerns are more likely to conduct ongoing data analysis and ‘snap’ audits – both were proven to reduce fraud in terms of loss and duration.
Another statistic from the report that may explain higher SME losses is that tipping off is the most common form of fraud detection (accounting for 40% of detections) and organizations with a hotline received 16% more tip-offs than those without one.
It’s fair to say larger organizations are more likely to have hotlines than smaller ones. Also, employees provide over half of tip-offs – so purely because they have more staff, a larger concern would derive increased benefit from inside tip offs.
Victims recover little money
Perhaps the most concerning the finding of the report is that organizations, in general, receive very little and in many cases no money or other assets back after suffering a fraud.
Over the past ten years, frauds referred to prosecution declined 16%; the main reason for this being a fear of adverse publicity. It’s true that certain frauds made public could have a negative effect in causing customers to leave, stop buying from the business concerned, or put them off dealing with the organization in the first place.
There have been several notorious frauds in the past such as those causing Enron and Arthur Andersen to collapse, along with plenty of lesser-known yet devastating cases.