Fraud: That’s always something that happens to the other guy, right? You know that none of your employees or vendors would resort to such low dealings.

Then you might want to check these stats. The annual percentage of annual revenue lost to fraud by U.S. companies:

• a. 1%
• b. 4%
• c. 6%
• d. 8%

If you guessed “c,” you’re on the money. An incredible 6% of annual revenue went down the fraud drain, according to the Association of Certified Fraud Examiners. The tab for all companies in the U.S.: $660 billion.

Then why don’t I hear more about this, you might be thinking. There’s a good reason: Many companies keep fraud losses under wraps because the reports can undermine confidence in the business, and might even encourage others to try the same.

Managers and execs are responsible for more than two-thirds of the frauds — and they come with a higher price tag. When non-management employees are nailed for fraud, it usually involves around $62,000, according to the Fraud Examiners. But the cost goes up as you climb the corporate totem pole: managers, execs and business owners generally make off with between $140,000 and $900,000.

What makes fraud so difficult to detect is that it’s a byproduct of business transactions that appear to be perfectly legitimate — on the surface. Then, under the most likely scenario, the company “insider” schemes with an outside vendor to inflate invoices, charge for goods or products never delivered, etc.

In Procurement, part of your job is to try to pick up signals of fraud before they can be carried out. That’s why it’s even more important to keep a close eye on new vendors, especially if they seem to develop a particularly close bond with one of your everyday staffers.

Another way to try to keep on top of the situation is to request random audits, done by people in A/P, Finance or elsewhere. With the element of surprise always looming in the wings, it’s difficult for fraudsters to quickly cover their tracks.

Finally, there has been one big shift in favor of your company: Sarbanes-Oxley reporting requirements. Much of your company’s money flow and transactions go under a powerful microscope and can be detected by the seasoned pro. Also, companies are required to encourage whistleblowers to anonymously report misdeeds and wrongdoing.

Tags: fraud, transaction, vendors