In today’s slow economy, the fundamental investment that small to mid-sized organizations should make is to have a strong internal control program to reduce the risk occupational fraud. Companies make many types of capital investments to have financial growth. Common investments include property, plant, and equipment, marketing, and increasing hiring. However, most small and mid-sized companies fail to administer any internal controls in their organizations, and this is a large risk for them.
According to recent research by the Association of Certified Fraud Examiners, of 1388 organizations that were victims of fraud in their 2012 report, half had no internal controls whatsoever. About 20% of those organizations still did not put protections into place upon being victimized by occupational fraud. The Association of Certified Fraud Examiners has found that the typical organization losses approximately 5% of their annual revenues to fraud. If the typical organization is losing %5 of revenues to fraud, then investing in anything else prior to investing in internal controls is extremely risky.
In today’s economy it is very important that business owners make even smarter decisions that they may have made in better economic times. Small and mid-sized organizations typically lack the financial strength to withstand financial mistakes of up to 5% of annual revenues. A smaller company with revenues of 1 million dollars may lose $50,000.00 with no controls. The sustainability of their company as a going concern is at risk.
As small and mid-sized organizations implement proper internal controls, the risk of them being the victim of occupational fraud is reduced significantly. In slower economic times it is especially important to have controls in place, and protect the future existence of your organization.
Kenneth B. Hunt MBA, CFE
Kenneth Hunt's Blog 