Desperate times call for desperate measures, the saying goes.
So it's not surprising that fraud in the workplace increased during the economic crisis and recession. The median loss tied to occupational fraud is $160,000, according to the Association of Certified Fraud Examiners' (ACFE) 2010 report, so the issue is something about which many companies are rightfully concerned. Small businesses are especially vulnerable, the ACFE says.
Fraud typically occurs when someone has an incentive, such as financial pressure, and opportunity, according to Michele Edwards, who heads the fraud prevention and detection practice of PRGX, a Chicago-based audit, analytics, and advisory services firm. The recession certainly meant many people faced new financial pressures.
Previous studies have shown that it typically takes two years from the time fraud begins to the time someone identifies it might be going on, Edwards said. As a result, while some companies have already discovered fraud born of the recession, many more are likely to uncover problems in upcoming years. "I think there's more fraud going on than anyone knows about," she said.
Nicole Wolfgang, COO of Sageworks, said periods of sudden growth, such as when demand for a company's goods or services starts picking up quickly, can also open the door to fraud. Workers may be scrambling to keep up with more work, giving them less time to monitor employees, expenses, and inventory. "During a period of high growth, there might be the potential for companies to drop the ball in some of those areas," said Wolfgang, who oversees finance, accounting, and other operational aspects of the Raleigh, North Carolina‒based financial information company.
Edwards said new markets or new partners tied to growth efforts can also potentially expose businesses to corrupt third parties.
Fraud can pad your selling, general, and administrative expenses or inflate your cost of sales.
Here are five ways to fight fraud in your business:
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