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Why Your Small Business Needs A Fraud Examiner

The ACFE puts out an annual report to present its analysis of occupational fraud cases. In its 2018 Report to the Nations, its study considered 2,690 cases investigated by participating CFEs between January 2016 and October 2017. Data only includes information from reporting CFEs and excludes undetected or unreported fraud.

Here are a few of its findings:

  • 42% of the reported cases involved privately held companies

  • 29% involved publicly traded companies

  • 28% of defrauded companies have <100 employees

  • 22% have 100 – 999 employees

  • The Average Loss suffered by these defrauded companies was an average of 5% of their annual revenue

What is 5% of your annual revenue? Is that an acceptable risk of doing business?

Unfortunately, small companies are especially vulnerable for a few reasons. Mainly, small business owners think they don’t have the resources to put proper controls into place. The 2018 Report discovered that of the companies with <100 employees, 42% of those frauds resulted from a lack of internal controls, and 29% are perpetrated by an owner/executive, such as a highly trusted employee.

If you're now panicking, don't. That's where a certified fraud examiner comes in. What’s a Fraud Examiner?

The Association of Certified Fraud Examiners says that a CFE is an expert in fraud prevention, detection and deterrence. “CFEs,” it says, “are trained to identify the warning signs and red flags that indicate evidence of fraud and fraud risk.”

What is the difference between a CPA & a CFE? The ACFE was established in 1988 by Joseph T. Wells, accountant-turned FBI agent. It has grown to nearly 85,000 members world-wide and is the largest anti-fraud organization and fraud education/training source in the world.

The CFE has a skill set setting it apart from other professionals such as CPAs. Like CPAs, they must pass a rigorous test, but the CFE test combines four unique disciplines:

  • Fraud Prevention and Deterrence

  • Financial Transactions and Fraud Schemes

  • Investigation

  • Law

My SMB Is Safe

Sadly in fraud cases, it’s often the most trusted individual in the organization that is in the best position to commit fraud.

Municipalities and even small towns where everyone knows each other can fall victim to fraud. Have you seen the 2017 documentary “All the Queen’s Horses”? It tells the story of how the city comptroller embezzled $53 million dollars from the small town of Dixon, Illinois, over a period of 20 years. How is that even possible? She was an employee in a small office with insufficient internal controls, and no one questioned her because she was highly trusted by the mayor of the town. If you are worried that your small business does not have the proper controls in place to prevent fraud, we are here to help. Our team at Paula Field CPA would love to schedule a consultation and see how we can help.

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