All organizations are susceptible to fraud. Nonprofit organizations and small businesses must implement adequate internal controls to help mitigate risk and protect themselves from potential losses. You can read extensively about fraud courtesy of the Association of Certified Fraud Examiners in their Report to the Nations on Occupational Fraud and Abuse.
The following are a few highlights and conclusions from their report:
- Providing individuals a means to report suspicious activity is a critical part of an anti-fraud program. Fraud reporting mechanisms, such as hotlines, should be set up to receive tips and should allow anonymity and confidentiality.
- A typical organization loses 5% of its annual revenue to fraud, which translates to a potential fraud loss of more than $3.7 trillion worldwide. A typical fraud lasted 18 months before being detected and caused a median loss of $150,000.
- Fraud is more likely to be detected by a tip than by any other means. Over 40% of all fraud is detected by a tip and nearly 50% of all tips come from employees of the organization.
- Small organizations are disproportionately victimized by occupational fraud because they typically lack adequate anti-fraud controls compared to their larger counterparts. Managers and owners of small businesses should focus their anti-fraud efforts on the most cost-effective control mechanisms, such as hotlines, employee education and setting a proper ethical tone within the organization.
- Anti-fraud controls appear to help reduce both the cost and duration of the fraud, with the most effective of these controls being a “hotline”. Organizations with fraud hotlines suffered much smaller losses than organizations without them.
- More than 85% of fraud perpetrators had never been previously charged or convicted for a fraud-related offense.
- Organizations tend to over-rely on external audits. While they can have a strong preventative effect, they should not be relied on exclusively for fraud detection.
- The cost of fraud — both financially and to an organization’s reputation — can be damaging. Since nearly half of victim organizations were unable to recover their losses, proactive measures to prevent fraud are critical.
In addition to fraud reporting, our third-party anonymous and confidential hotline can be used by employees, volunteers, board members, and others within the organization to report concerns and issues such as: conflicts of interest, sexual harassment, violation of company policy, ethics violations, misconduct, or unfair labor practices. These issues are only some of the many concerns that nonprofit organizations and small businesses need to be notified of so that they can take corrective action and reduce their potential for loss.