Sunday, January 31, 2010

What is the true cost of fraud?

The following, while not an exhaustive list, need to be considered:
  • Of course the actual value of the fraud needs to be taken into account.
  • How much does it cost to investigate the fraud? This could be the cost to bring in someone externally to conduct the investigation or the time cost of people within the organisation to investigate the fraud.
  • Who will liaise with law enforcement and take the necessary time to work with them and potentially ultimately attend court to give evidence?
  • Fraud comes straight off the bottom line – consider this: if your organisation runs with a 1% surplus, a $50,000 (off the bottom line) fraud means that you need to raise $5,000,000 (top line) to replace that $50,000. This is a very difficult task to do.
  • Would the fraud mean your organisation would need to either need to arrange an overdraft or extend the overdraft to maintain the cashflow? The additional interest becomes a cost of the fraud for the length of time it takes to no longer need the overdraft or extended overdraft.
  • It is very difficult if not impossible to determine the cost of the fraud on the reputation of the organisation. What effect would the fraud have if it made the front page of the newspaper?
  • Could the organisation be at risk of losing funding such as grants?
  • Losses can be offset by any insurance, but it needs to be remembered that an insurance payout is “after the fact” and cashflow can be significantly affected before the payout is received.

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