Greg: This is PKF Texas, the Entrepreneur’s Playbook. I’m Greg Price, Director of Consulting Solutions and I’m here again with Charles Philpott, a CPA and one of our Certified Fraud Examiners at PKF Texas. Charles. Welcome back to the Playbook.
Charles: Thank you, Greg.
Greg: Charles, I’m also a CFE and one of the things we talk about with folks that have questions around fraud and forensics is what I call the iceberg effect, which is no matter what you’re seeing, it’s about 5 percent of the surface and 95 percent is below the water. So how does that translate into what you’re seeing for medium-sized businesses around the country today?
Charles: The recent 2012 ACFE survey found that companies were reporting roughly five percent of their revenues being lost to fraud on an annual basis and the median for companies overall was $140,000.00 per fraud. When we move it down to the small business, 100 employees or less, turns out the median is roughly $150,000.00 per fraud, so again, you’re talking for a small business, this is going to have a major effect on them?
Greg: The numbers are stunning from my perspective. That’s very large. Are there any other things that you see that might be red flags or indicators of problems?
Charles: Yes, there are 3 primary red flags that account for roughly 70 percent of the frauds as reported in the survey. We have employee living beyond their means or a situation where employee’s in financial distress, or where they’ve got a very close relation with a vendor or customer such that the appearance of potential impropriety is evident.
Greg: Wow. Sounds like there’s a lot to cover in that regard.
Charles: Yes.
Greg: All right. Well thanks for sharing that insight with us today. We’ll have you back another time on The Playbook.
Charles: Thank you. Look forward to it.
Greg: All right. Thanks very much. This has been another Thought Leader Production, brought to you by PKF Texas, the Entrepreneur’s Playbook. Tune in next week for another chapter and remember if you’re looking to assess your company’s vulnerability to fraud, PKF Texas has a cool tool and we’d like you to go out and check it out. It’s at www.pkftexas.com/fraudsurvey.