Occupational Fraud Is Real

As a business owner, have you ever suspected that an employee was skimming off profits? Because awareness is vital to prevent fraud in your organization, we are sharing the annual Report to the Nations for 2018 from the Association of Certified Fraud Examiners (download the report for free here) According to the report, worldwide fraud added up to over $7 billion in losses last year.

fraud IGIn small businesses, fraud often goes unreported. But corruption like purchasing and sales schemes, bid rigging, invoice kickbacks, and downright cash skimming added up to a median loss of $108,000 in U.S. businesses—over 70% occurring in for-profit organizations.

Small business lost almost twice as much per scheme as large companies. Those with fewer than 100 employees lost an average of $200,000 — 42% of which can be attributed to lack of internal controls.

Two alarming statistics are: 1) longer term employees stole twice as much as newer employees, and 2) a majority of the victimized companies never recovered a dime.

The report also shows what is proven to reduce fraud: 1) data monitoring & analysis, and 2) surprise audits. Yet only 37% of victim companies implemented these controls. Had it not been for an inside tipster, internal audit or other type of management review, these schemes would not have been detected at all.

In 85% of the cases, the employees committing fraud displayed at least one behavioral red flag. We encourage our small business executives to download the report so they can develop an alertness to these behaviors or clues and better protect their hard-earned profits.

Downloading the report is free, infographics make the report easy to understand, and access to the report does not require any personal information. Be safe, small business!

Most Profitable Small-Businesses

We make a it practice to stay informed about small business trends, news, and issues. Of interest to us, and probably to all business owners, is what are the most profitable industries for small business, and what an average profit margin is for that business. Our list starts at #15:

15. Office Administration Services. Serving as the backbone of business operations from food services to physicians’ offices, these administrative services businesses keep the records, do the billing, help with planning, and handle day-to-day administrative responsibilities.
14. Design Services (11.5%). Small businesses that specialize in graphic design, public relations, website and app development, branding, or anything that adds value to another business’s product, function, or reputation.
13. Consulting Services (12%). These are the management and consulting companies that have an expertise in human resources, marketing, environmental or other specialty knowledge/skill.
12. Churches and Religious Organizations (12.5%). Nonprofit churches are making more and this means they are able to do more to further the mission of the church or organization.
employees11. Machinery and Equipment Rentals & Leasing (12.6%). If you’ve ever rented because you couldn’t afford to buy, there’s an equipment rental company owner finding that it pays to rent as well.
10. Physicians (13%). Becoming a doctor requires years of training, certification and experience, but once established in a practice, one benefits from regular clients and low overheads.
9. Health Practitioners (13%). These are the chiropractors, optometrists, metal-health practitioners, and podiatrists—or everyone who falls under the category “other than physicians.”
8. Real Estate Holders (14%). Once the initial property investment is paid, landlords renting residential and commercial properties do well.
7. Power Companies (14%). These are the private, small electric power companies that are harnessing hydroelectric, nuclear, solar, wind, and geothermal energy. Like those that fill the prairies with windmills and invest in huge solar panels.
6. Dentists (14%). Like doctors, dentists benefit from repeat business, and while start-up costs are still huge, debt is paid quickly because one dentist can handle several patients at a time, and many of their clients pay out of pocket.
5. Legal Services (15%). When business is booming, deals are being made requiring an attorney, and more people can afford lawyers’ fees.
4. Auto Rental and Leasing (15%). Uber and Lyft aren’t the only ones doing well. So are the traditional rental companies like Enterprise and Hertz.
3. Offices of Real Estate Agents and Brokers ($15.5%). In a booming economy, low overhead and low operating costs make for great returns.
2. Management of companies and enterprises (16%). These are small, privately-owned offices of bank holding companies.
1. Accounting and taxes services (19%). No matter how the economy is doing, everyone always needs accountants. Repeat clients make a huge difference too!

What is it about the top four that makes them so profitable? It’s simple. They are driven by human capital. It’s brains and know-how that get product out the door. Each category has relatively low, or exceptionally low, overhead, no warehouses full of parts and inventory, and are comparatively self-contained. They don’t rely on manufactured goods or the global economy. They are run by entrepreneurs determined to succeed, are usually innovative in their thinking, and can implement change easily.

Editor’s Note: There are many lists similar to this one. We’ve taken a conglomeration and rounded off reported profit margins. We don’t mean to ignore the copywriters, funeral homes, cleaning services, landscapers, and all the start-ups and long-time businesses with low overhead and good margins. You are all doing an amazing job keeping the gears greased in this place we call America.