I’ve asked this question of hundreds of client leaders. Only a few – less than 10 so far – were able to answer based on their own detailed analysis of losses. In those organizations – and dozens of others where we’ve helped quantify this cost – losses in the range of one to two percent of revenues were the norm. And in the vast majority of clients where we helped management build a successful Fraud Prevention and quick Fraud Detection campaign, those losses were cut in half in less than 18 months.
What are you losing to theft, misconduct, wrongdoing and outright fraud?
In over 30 years of attacking this question with consulting clients, we’ve never calculated an actual loss amount of less that than one percent of revenues. To be fair, these clients are all from fairly large to huge organizations. Smaller organizations often experience losses below this threshold due to their ability to better monitor transactions and key relationships. But even their losses are much more than zero.
So let’s assume just for a second that your losses parallel what we see in real life. To be conservative (and believable!) let’s assume that your losses are only one percent of your revenue stream. One percent of anything doesn’t sound like a lot. So let’s use dollar amounts instead.
- 1% of $10 billion is $100 million
- 1% of $50 billion is $500 million
- 1% of $1 billion in revenue is still $10 million in untracked losses
Let’s face it. If you were an owner of a billion dollar company, and you saw someone driving away from your offices in a truck with $10 million in cash, wouldn’tyou drop everything you were doing and stop them?
But when the losses occur slowly in a clandestine manner over time each day, for some reason we don’t pay them much attention.
Death by a Thousand Paper Cuts is Still Death.
Here’s a quick summary of what to do.
Step 1. If you don’t know your losses from wrongdoing with precision, assume one percent of annual revenues.
Step 2. Make a quick list of the top five or six areas where these losses must be occurring to reach your one percent target sanity check. Include unexplained inventory shrink and theft, estimated contractor and vendor overcharges, time reporting, P-Card abuse, inflated expense and health care reimbursement, construction and other contractor overcharges, manipulation of sales compensation and other financial results, and anything else that comes to mind. Just list the areas of potential loss.Don’t try to specific dollar calculate amounts at this point – that happens next.
Step 3. Meet with the leaders who oversee each of these areas and have an open discussion about what they estimate losses to be from any misconduct, wrongdoing or theft. After all, they are the experts and should have a rough idea. Expect some resistance (#1 being – “I don’t have any losses in my area!!!”). Keep pushing until you agree on a high and low range for each area of potential loss.
Step 4. Add these results together and see if they fall near the one percent of revenue amount. If not, keep digging.
Step 5. Last for now, initiate a Fraud Prevention and quick Fraud Detection Campaign that specifically targets just these loss areas. Pledge to cut these losses in half in18 months.
Never lose sight of the end goal. Every single dollar you save goes straight to income. It’s all about financial ROI through meaningful Fraud Risk Management.
What to Do Next
Want more detail to build your Fraud Prevention Plan? Do you want to:
- STOP worrying about the abstract concepts of fraud prevention
- PROTECT your organization’s reputation (and yours, too)
- START taking proven effective action,
- CUT your losses, and
- ADD an equal amount to income
Click here and let’s have a conversation. John@FraudPreventionPro.com
As we tell every new client, “We’ve got this!”