Fraud and embezzlement can devastate a business financially and damage its reputation. Being proactive by implementing internal controls and regularly monitoring financial activities can save significant time, money, and headaches in the future.

As business owner, your primary focus is growing the company, managing teams, and serving customers. However, a hidden threat exists that can significantly impact your hard-earned success: employee fraud and embezzlement.

According to the Association of Certified Fraud Examiners’ (ACFE) 2024 Report to the Nations, the typical business loses approximately 5% of its annual revenues to fraud. For many small to medium-sized businesses, these losses can be catastrophic.

Protect your company's bottom line, avoid falling victim to employee fraud, and build your customers’—and stakeholders’—trust with the following strategies.

Understand the Risks

The 2024 ACFE report highlights several surprising and alarming facts:

• Median loss per incident. Businesses experience a median loss of $120,000 per fraud incident, and many suffer multiple incidents before detection.
• Duration of fraud schemes. On average, fraudulent activities go undetected for about 16 months, demonstrating significant gaps in internal controls.
• Primary methods. Billing schemes, payroll fraud, and check tampering remain among the most common types of employee fraud.
• Perpetrators. Typically, fraudsters are trusted employees with substantial tenure and responsibility within the company. More than half of fraud incidents involve someone in a senior position or management role.

These facts reveal that internal fraud isn't usually perpetrated by a stranger but rather by trusted employees who exploit weaknesses in the company's internal controls.

Common Business Weaknesses

The report identified several recurring vulnerabilities that businesses commonly overlook:

• Lack of oversight. Limited review of financial statements or transactions allows fraud to go unnoticed.
• Inadequate separation of duties. When one employee is responsible for multiple financial tasks, such as approving and processing payments, the opportunity for fraud increases significantly.
• Insufficient internal audit functions. Businesses lacking regular internal reviews or audits fail to detect anomalies timely.

Action Steps for Protecting Your Business

While no system can eliminate fraud completely, there are practical steps you can take to significantly reduce your risks.

Implement Separation of Duties

Ensure financial duties such as issuing payments, approving expenses, and reconciling bank accounts are handled by different employees. The ACFE report shows that simply splitting financial responsibilities can dramatically reduce the likelihood of fraud occurring.

Conduct Regular Surprise Audits

Frequent, unannounced reviews or audits can detect fraud schemes quickly. The ACFE report notes businesses conducting regular surprise audits experience significantly lower losses and shorter fraud durations.

Create a Robust Reporting Mechanism

Establishing an anonymous reporting system, such as a hotline or email system, encourages employees to report suspicious activities. According to the ACFE, businesses with a hotline detect fraud 12 months earlier, on average, than those without.

We’re Here to Help

To learn more about how you can protect your agribusiness from internal fraud, contact your firm professional.

Additional Resources

• Agribusiness Practice
• Strategy & Operations Consulting Services