Why should your business care about the impact of financial fraud?

Why is the risk of financial fraud overlooked?

Fraud is a latent threat, which means it does not typically appear openly in the day-to-day operations of a company. Business leaders are often busy handling more immediate and visible concerns — such as addressing labour shortages or reaching operational objectives. This allows hidden risks such as fraud to go unnoticed.

Additionally, MNP’s recent survey of Quebec business owners and senior executives revealed that three times as many respondents believe their company is less exposed to financial fraud risk than their competitors. They believe their competitors are at greater risk, which leads many to deprioritize fraud prevention within their own business.

However, the reality is that fraud can happen to any company. Twenty percent of survey respondents report that their business has fallen victim to fraud in the past. An additional 13 percent are not sure whether their business has been impacted by fraud — but believe that fraud may have occurred. This means more than a third of business have been victims of fraud or suspect it has occurred.

Businesses impacted in the past have been a victim of fraud three times on average. However, a startling 15 percent of businesses have been affected by fraud five times or more according to the results from MNP’s survey. This makes it critical to take proactive steps to reduce your risks before fraud occurs and to reduce potentially severe consequences to your business.

What are the consequences of financial fraud?

Financial fraud can have a variety of consequences on a business, including:

Financial losses

Financial losses are the most direct consequence of fraud. The Association of Certified Fraud Examiners (ACFE)’s 2024 Report to the Nations states that 1,921 cases of fraud occurred in 2024, causing total losses of more than $3.1 billion. Canada and the U.S. accounted for 38 percent of cases with a median loss of US$120,000 per incident of fraud.

Additionally, the ACFE estimates that organizations lose approximately five percent of their revenue to fraud each year. This negatively impacts a company’s cashflow and threatens business sustainability, continuity, and long-term growth.

Operational disruptions

Two-thirds of MNP survey respondents report that fraud resulted in a moderate to very high impact on their financial and managerial stability. A lack of stability can cause operational disruptions, as companies struggling to maintain a healthy cashflow may find it difficult to pay suppliers or operating expenses on time.

Late payments may cause suppliers to cancel contracts with the business or lead to inventory shortages, which results in production delays. Additionally, your management team may be focused on crisis management and damage control when fraud is uncovered within your business instead of dedicating that time to ensuring your operations are running smoothly. 

Reputational damage

Survey respondents perceived fraud to have a less significant impact on a business’ reputation in comparison to its finances and management. However, 40 percent of businesses that experienced financial fraud reported a moderate to very high impact on their reputation.

Reputational damages can have significant and varied impacts on a business. Strong reputational awareness should lead companies to look at ways of reducing fraud risk to protect their reputation. 

Loss of morale

Fraud may also have a significant impact on employee morale depending on how your business reacts to a discovered fraud. It can cause a climate of uncertainty and suspicion in the workplace and heighten concerns about job stability — leading to lost productivity.

Additionally, employees will take issue if the perpetrator of the fraud does not experience any consequences and remains within the business. Low morale often leads to employees losing confidence in the company, resulting in decreased productivity. It also contributes to increased turnover and higher training and hiring costs.

Take the next steps

Approximately one in three businesses will be impacted by financial fraud at least once during their existence. This makes it crucial to understand your risks and assess vulnerabilities in your business to avoid significant consequences and protect both your business and your bottom line.

Discover more insights in our whitepaper Misconceptions about fraud risk pose significant threats to Quebec businesses. This report analyzes the results of our survey — and provides insights and tips from our Forensics and Litigation Support Services team to help reduce risks to your business.