At the global level, the US Chamber of Commerce estimates that the annual cost of fraud exceeds $100 billion. Research by the Association of Certified fraud Examiners (ACFE) in 2009 indicates that, “the typical U.S. organization loses 5% of its annual revenues to fraudulent activity.” In the African context where governance and controls are weak or non-existence, this percentage is higher – over 10%! In business terms, this percentage is very big considering that many organisations in Sub-Saharan Africa rarely attain 5% of their annual revenue as gross profits – implying that all the company’s profits is lost to fraud! And then we wonder why our economies never grow! All the profits for re-investment are lost and nothing is available to meet operating costs and for reinvestment.
This big bill for fraud is not paid by its perpetrators, rather it is paid by innocent parties including consumers, insurance companies and public servants such as external auditors. The cost of fraud eventually bites into the profitability of the victimized organization as well as the stability of the economies in which the fraud takes place.
Fraud involves a misallocation of resources or distorted reporting of the availability of resources. This contradicts the elements of sound and prudent management. Fraud impairs efficiency, productivity and innovation because it siphons away resources to non-constructive activities.
This limits an organization’s ability to manage, grow and succeed. Corporations cannot remain healthy and remain competitive if fraud continues to go undetected. The resources misallocated threaten the longevity of a firm. Losses incurred owing to fraud can be translated into decreased sales, employment, productivity, and credibility. In fact, the only increase associated with fraud is the cost of legal and insurance protection. At SCL, we have the expertise to help your organisation stop the risk of fraud. Make that call now.
It is always better to trust after controls – Mustapha Mugisa.