There’s a good chance fraud may be occurring under your nose. How to get better at preventing it from happening on your watch.
Tracy L. Coenen – CFO Magazine
Internal fraud is a huge risk to companies. Experts estimate that on average it costs companies 3% to 5% of revenue each year. Especially when profit margins are thin, internal fraud can literally put some companies out of business.
But executives are prone to underestimating the amount of fraud that exists within their company. They want to believe that their internal controls are better, their employees are more honest, and their ability to stop fraud is more effective than that of executives at other companies.
The truth is, they are often unaware of all the frauds committed within their company’s walls. Indeed, fraud is often hard to find and may be hidden among the seemingly more trustworthy employees, those who are necessary for keeping the business running. They are the ones putting companies at risk; they have access to assets and information and the opportunity to steal and cover up fraud.
This is why Corporate America likes to speak in averages, under the guise of including all known and unknown frauds at companies across the globe. However, CFOs and other top executives should not get caught in the trap of believing their company is much better than average. They need to move beyond thinking a basic compliance program and an internal hotline are enough. Proactive fraud-prevention measures are necessary to manage the risk of fraud.