Occupational fraud still affects many businesses

It's an old story, but one that keeps playing out: businesses losing money to fraud committed by their own employees.

In fact, the Association of Certified Fraud Examiners found that occupational fraud cost businesses about 5% of their revenue last year. It’s a problem that can quietly chip away at your success.

As your strategic partners, we believe understanding your finances means knowing the risks. Let's break down the three main types of employee fraud so you can protect your business.

1. Asset Misappropriation

This is the most common type of occupational fraud. It happens when an employee steals or misuses a business asset. While it often involves cash, it can take many forms.

Think of schemes like:

• "Ghost" Employees: A staff member with payroll access creates a fake employee and pockets the salary.
• Check Tampering: An employee steals, forges, or alters company checks. While electronic transactions have reduced this risk for larger companies, many small businesses are still vulnerable.
• Skimming: In cash-heavy businesses, a dishonest worker might take cash before it's ever recorded in the books.
• Inventory Theft: If your business holds stock or supplies, these can be easy targets for theft if not properly secured.

While these schemes are the most frequent, they are usually less costly than the other two types of fraud.

2. Corruption

The second category is corruption, where an employee uses their influence for personal gain at the company's expense. These schemes can be complex and often go undetected for months or even years.

Be aware of:

• Vendor Collusion: A corrupt employee might conspire with a vendor to inflate prices, and they split the extra profit. This not only hits your finances but can also damage your reputation with lenders and investors.
• Kickback Schemes: An employee chooses a vendor not because they offer the best value, but because the employee receives a personal benefit in return—like cash, a gift, or free services.

Failing to prevent these schemes can erode trust and jeopardize the support your business relies on to grow.

3. Financial Statement Fraud

The third and final category is financial statement fraud. This is where perpetrators falsify financial statements, either to hide poor performance or to cover up theft.

While this is the least common type of fraud, it is often the most expensive, costing companies hundreds of thousands of dollars on average.

Watch out for schemes such as:

• Inflated Revenue: A manager might record sales that never happened to make the business look more profitable, perhaps to secure a promotion or avoid being fired.
• Hidden Expenses: A dishonest employee could hide or delay recording legitimate expenses or debts to make financial results appear stronger than they are.

This kind of fraud is particularly dangerous because it's sophisticated, difficult to detect, and can do serious damage to your company's reputation.

The Common Thread: A Threat to Your Business

Occupational fraud comes in many forms, but the result is always the same: financial and reputational damage. Smaller companies are often at a higher risk because they may lack the resources to implement robust internal controls.

We're not just about balancing the books; we're about helping you build a stronger, more resilient business. We can help you spot vulnerabilities, strengthen your internal controls, and create tailored strategies to prevent and detect fraud.

Let's work together to protect your hard-earned success.