Red Flag Reporting - Rea & Associates - Ohio CPA FirmThe Association of Certified Fraud Examiners (ACFE) continues to report that smaller businesses, which tend to have limited financial and human resources, are more susceptible to fraud. In its 2014 Global Fraud Study – Report to the Nations on Occupational Fraud and Abuse — ACFE found that the median loss per fraud at a small business totals $154,000. Unfortunately, the study also found that in nearly one-third of fraud cases, the victim organizations simply lacked appropriate internal controls.

Cost-effective controls are available if you know where to look.

Read Also: 10 Ways To Implement Internal Controls With Limited Resources

Fraud Hotlines

According to the data provided by ACFE, fraud hotlines are the most successful and cost effective controls an organization can utilize. The Report to the Nations on Occupational Fraud and Abuse analyzed 1,483 cases of fraud; and of those documented cases, 42 percent were detected by tips that were reported on fraud hotlines. Not only do hotlines serve as a deterrent, they reduce the impact of fraud. Organizations without a hotline lost on average about $180,000 – that number drops to about $100,000 when a hotline is introduced into the business’s internal control structure.

Data Mining

As a society, we are accumulating an unbelievable amount of information. In fact, ever since the first personal computer was manufactured and sold, we have been accumulating data at a pretty consistent pace. With the right equipment you can collect that data to help you deter and stop fraudulent behavior. Data mining, which is exactly what it sounds like (the process of mining, or searching through, data for inconsistencies), can be another cost-effective way to protect your organization because it provides you with the ability to identify instances of fraud that otherwise would have gone unnoticed.

For example, while I was working for a credit union, we were able to use data mining software to help us analyze nearly 15,000 accounts. Without data mining capabilities, this task would have been similar to searching for a needle in a haystack. However, with the software, we were able to zero in on a handful of suspicious accounts. From there, we were able to focus our efforts, review the transactions, validate management’s fears and shut the fraud down before it got any worse.

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Don’t Be A Victim

The Fraud Triangle - Rea & Associates - Ohio CPA Firm
While most people are honest by nature, nobody is immune to financial hardship. For example, a person confronted with overwhelming financial stress is more likely to commit fraud. Oftentimes, the justification for their behavior follows several consistent characteristics, also known as The Fraud Triangle.

Businesses should be monitoring everything and if they’re not, they should at least make their employees think that they are.

While most people are honest by nature, nobody is immune to financial hardship. For example, a person confronted with overwhelming financial stress is more likely to commit fraud. Oftentimes, the justification for their behavior follows several consistent characteristics, also known as The Fraud Triangle.

When you fail to monitor your employees or implement the internal controls necessary to deter fraudulent behavior, you are providing fraudsters with a sense of security – which makes the decision to steal again that much easier. Before long, their behavior is out of control.

There are resources available to help prevent fraud in your business. Email Rea & Associates to learn more.

By Joe Welker, CISA (New Philadelphia office)

Do you want to stand up against occupational fraud in your company or organization? These articles will help point you in the right direction.

Your Business Is Not Immune To Fraud

How Much Money Could You Be Losing From Fraud?

Tips For Fraud Prevention

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