How the size of an organization can affect its risk of fraud

According to the Association of Certified Fraud Examiners’ (“ACFE”) 2018 Report to the Nations, organizations with less than 100 employees represented the largest number of cases that they studied and were also the victims of the largest median loss due to fraud, when compared to the other organizations studied.

The ACFE’s findings are based on a study of 2,690 cases of occupational fraud that were investigated between January 2016 and October 2017.  The study found that the number of employees an organization has directly relates to the organization’s risk for fraud and its ability to implement anti-fraud controls. Smaller organizations tend to have fewer resources and more difficulty implementing separation of duties and other key fraud controls in order to help mitigate the organization’s risk.  In 42% of the cases studied involving organizations with less than 100 employees, the fraud was determined to have been caused by a lack of internal controls. In organizations with 100 or more employees, a lack of internal controls was identified in 25% of the cases.

Small organizations, or those with less than 100 employees, represented 28% of the cases investigated. These cases had a reported median loss of $200,000, which is almost twice as much as the median loss reported by organizations with 100 to 9,999 employees. The largest organizations studied had 10,000 or more employees and accounted for 24% of the cases. These organizations had a median loss of $132,000, which falls between the small and medium-sized companies’ range.

Another important difference to recognize when evaluating the fraud risks for organizations of different sizes is that larger organizations often battle different risks than smaller organizations. According to the study, the following percentages of cases related to organizations with 100 or more employees:

• corruption (43%);
• non-cash fraud (22%);
• billing (18%); and
• cash on hand (14%).

In contrast, the following percentages of cases related to organizations with fewer than 100 employees:

• corruption (32%);
• billing (29%);
• check and payment tampering (22%); and
• expense reimbursements (21%) (read more about expense reimbursement schemes here).

These statistics highlight the importance of understanding the specific needs and risks of an organization when designing or evaluating internal controls. Should you identify fraud, or have concerns of fraud occurring in your organization, contact Joel Rosenthal at 412.697.5387 or [email protected] or Alyssa Brunatti at 412.697.5371 or [email protected] to see how we can help you address those risks.