Fraud Carries a Heavy Price Tag

It doesn’t take much these days to incite worry in the business world. Phrases like “recession” and “tax increases” have enough of an impact right now to leave everyone biting their fingernails.

But there is one word that pops up (far more often than you’d like to think), that can cause as much damage as the global economy or the bills that Congress passes.

That one little word causing all the stress: Fraud. 

Basically, it’s the crime of cheating people. And it can be costly. About 5% of a company’s annual revenue is lost to occupational fraud and the median loss by all companies due to fraud is $160,000, according to the Association of Certified Fraud Examiners (ACFE) in its 2010 Report to the Nations on Occupational Fraud & Abuse.

And, while those figures are high, the manufacturing and mining industries see an even bigger increase in their median fraud losses. In manufacturing, that number is $300,000. But mining takes the cake with fraud losses costing around $1 million.

The report, which includes findings from the 2008 and 2009 calendar years, shows that for manufacturers, corruption was the leading fraud scheme and represented nearly 49% of the cases.

Additional findings reveal that 10.7% of the total fraud cases came in manufacturing industries, ranking it second overall. The total number of fraud cases reported by manufacturers is 193, also the second highest.

Switch to mining, and the number of fraud cases reported is 12, which is the lowest total. Those numbers, specifically in the mining industry, show that a large number of cases are unreported and money continues to go right out the door.

It’s not all doom and gloom, though. Thanks to agencies like the ACFE, there are plenty of tips and information available for companies to curtail fraud in the workplace. Some of the first guidelines for battling fraud include setting an ethical tone at the top, establishing a proper code of ethics and carefully screening job applicants.

While the potential for fraud exists wherever there is money to be had, instituting some new policies and being proactive in the approach to company fraud can end up costing less in the end, and benefitting the employer, employees and customers.