LUTZ BUSINESS INSIGHTS
Is Your Small Business At Risk of Fraud?
BILL KENEDY, LUTZ CONSULTING AND M&A PARTNER
$6.3 billion in total losses. That’s what the 2016 ACFE Report to the Nations on Occupational Fraud and Abuse found when studying occupational fraud. And who suffered the most? Small businesses.
Business Statistics You Need to Know
According to ACFE’s report:
- 2% of cases caused losses of $1 million or more.
- It was estimated the typical business lost 5% of revenue in a year as a result.
- $150,000 was the median loss for all cases in the study.
- More than 75% was committed by employees working in accounting, operations, sales, upper management, customer service, purchasing, and finance.
- 6% originated in accounting departments.
Businesses of various sizes experienced different types of fraud. Corruption is more common among large businesses with more than 10,000 employees whereas asset misappropriation embezzlement and financial statement fraud are more common among small businesses with fewer than 100 employees.
How to Protect Your Small Business from Fraud
Small businesses suffer the greatest impact from fraud and embezzlement. They have limited resources and often don’t have the anti-fraud systems in place that larger organizations do, which makes them more vulnerable. It’s also more common for small businesses to have a single person in charge of accounting rather than a team, which makes it easier for a fraudster to scheme longer.
- Individuals who commit fraud are typically unorganized, behind on their work, for instance, accountants that don’t issue timely financial statements.
- Individuals who commit fraud often have a trustworthy friend or family-like relationship with owners.
- Individuals who commit fraud display behavioral signs such as living beyond means, having close relationships with vendors or customers, having excessive control issues, struggling financially, and dealing with a recent divorce or family problems.
Quick detection is key in preventing significant damages. According to the report, businesses with anti-fraud systems in place were able to detect fraud 33-50% faster than those without, and their losses were 14-54% lower because of early detection.
A “red flag reporting” (or anonymous tip) system is the most common method for protecting your business. In ACFE’s study, hotlines were found to be the primary tip-off system (39.5%) followed by email (34.1%) and web-based or online forms (23.5%).
If your small business does not have anti-fraud control processes in place, you could be at risk.
ABOUT THE AUTHOR
BILL KENEDY + LUTZ CONSULTING AND M&A SHAREHOLDER
Bill Kenedy is a Lutz Consulting and M&A Shareholder at Lutz. He specializes in business valuation, litigation support, and merger and acquisition advisory services.
AREAS OF FOCUS
AFFILIATIONS AND CREDENTIALS
- American Institute of Certified Public Accountants, Member
- Nebraska Society of Certified Public Accountants, Member
- Certified Public Accountant
- Accredited in Business Valuation
- Certified in Financial Forensic
- Certified Exit Planning Advisor
- BSBA in Accounting, St. John’s University, Collegeville, MN
- Construction Financial Management Association, Past Treasurer, Board Member
- A Time to Heal (non-profit focused on cancer patients), Past Board Member
- Net Working Capital: What is it and How is it Used?
- Issues During the Due Diligence Process in M&A Transactions
- Lutz M&A Advises Fantasy's, Inc. on its Acquisition by Casey's General Stores
- Primary Benefits of Selling Your Company to an ESOP
- Is An Employee Stock Option Plan Right for Your Business?
- Lutz M&A Advises C&W Transportation on its Sale to Platform Capital
- Our Services, Our People, and Our Results
- Lutz M&A Advises Hands of Heartland on its Recent Investment by Evolve Capital
- Lutz M&A Advises Labor Source on its Recapitalization by Great Range Capital
- Overcoming Obstacles in Business Transition Planning
- Understanding Net Working Capital in Business Transactions
- How to Increase the Value of Your Business
- When is the Right Time to Exit My Business?
- Lutz M&A Advises Triage Staffing on Recapitalization
- Lutz M&A Advises Hockenbergs on Recent Sale to Trimark USA LLC
- Lutz M&A Advises Focus Respiratory on its Recent Buyout by Valley Healthcare Group
- Is Your Small Business at Risk of Fraud?
- Lutz M&A Advises CCW, LLC on its Recent Buyout
- Lutz M&A Advises NIFCO Mechanical Systems on Recent Sale
- Lutz M&A Advises Midwest Door & Hardware on Recent Sale
- Why is Forensic Accounting Needed?
SIGN UP FOR OUR NEWSLETTERS!
We tap into the vast knowledge and experience within our organization to provide you with monthly content on topics and ideas that drive and challenge your company every day.
13616 California Street, Suite 300
Omaha, NE 68154
747 N Burlington Avenue, Suite 401
Hastings, NE 68901
601 P Street, Suite 103
Lincoln, NE 68508
3320 James Road, Suite 100
Grand Island, NE 68803