Small businesses found vulnerable to fraud

Fraud has gained high visibility in the days since the Enron story broke, but small businesses may be the most vulnerable.

The Minnesota Bankers Association compiled information released from a report by the Association of Certified Fraud Examiners. The examiners reported small businesses are the most vulnerable to occupational fraud and abuse.

Some of the findings include:

* The average scheme in a small business causes $127,500 in losses. The average scheme in the largest companies costs $97,000.

* More than 80 percent of occupational fraud -- asset misappropriation, corruption or fraudulent statements -- involve asset misappropriations. Cash is the targeted asset 90 percent of the time.

* Frauds committed by employees cause median losses of $60,000, while frauds committed by managers or executives cause median losses of $250,000. When managers and employees conspire in a fraud scheme, the median loss rises to $500,000.

* Organizations with fraud hotlines cut their fraud losses by about 50 percent.

* The typical occupational fraud perpetrator is a first-time offender. Only 7 percent of occupational fraudsters in this study were known to have prior convictions for fraud-related offenses.

* The most common method for detecting occupational fraud is through tips from employees, customers, vendors and anonymous sources. The second most common method of discovery is by accident.

* Losses caused by perpetrators older than 60 are 27 times higher than losses caused by employees 25 and younger.

* The average fraud scheme lasted 18 months before it was detected.

Source: Minnesota Bankers Association.