Austin, Texas (July 26, 2004) -- The typical U.S. business loses an estimated 6 percent of its annual revenues to fraud, which translates into $660 billion in losses, according to data from the Association for Certified Fraud Examiners.


Small businesses suffer disproportionately larger losses due to occupational fraud and abuse, the ACFE reported in its third Report to the Nation on Occupational Fraud Abuse. The median cost experienced by small businesses in the study was $98,000 -- higher than the median loss experienced by all but the very largest organizations (those with more than 10,000 employees), the ACFE said. The median loss among the largest companies was $105,500. The 2004 ACFE study covered 508 cases of occupational fraud totaling over $761 million in losses.


The ACFE found that occupational frauds were much more likely to be detected by a tip than through other means, such as internal audits and internal controls, supporting the Sarbanes-Oxley requirement that audit committees establish confidential reporting mechanisms. Among frauds committed by owners and executives, which ACFE said tend to be the most costly, more than half of all cases were identified by a tip.


The median loss among organizations with anonymous reporting mechanisms was $56,000, while it was more than twice as high for those that didn't have established reporting procedures, ACFE said.


And the ACFE noted that companies may want to extend confidential reporting mechanisms to third-party sources. Among cases that were detected by a tip, 60 percent of tips came from employees, 20 percent came from customers, 16 percent were from vendors and 13 percent were from anonymous sources.


-- WebCPA staff

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