Fraud is one of the largest risks cannabis businesses face. Whether you are a cultivator, processor or distributor of cannabis, fraud prevention and awareness is a MUST to prevent and/or detect major risks with adverse consequences.
Based on a recent PwC survey from 2020, that included 5,000 respondents across 99 territories, 47% of companies reported that they experienced fraud in the past 24 months, with an estimated $42 billion dollars in total losses. That’s a very large number and does not include the damage to the company brand or market share.
According to the survey results, each company reported an average of 6 fraud related incidents with the most common being customer fraud, cybercrime, and asset misappropriation. Unfortunately, only 56% of the companies who reported fraud conducted an investigation into their worst fraud related incident.
Why is it important?
Any organization that fails to protect itself appropriately faces increased vulnerability to fraud, which can have a significant impact on your reputation, brand and continuity.
Fraud is an expensive drain on a company’s financial resources and damages the statement of cash flows. In today’s globally competitive environment, cannabis businesses can not afford to throw away the five percent of revenues, which represents the largely hidden cost of fraud.
Preventing and detecting fraud early is key to your cannabis company's survival. There is an average of 6 instances of fraud within 1 company that has fraud. Which means, if you detect fraud on the 1st instance then you can prevent the next 5 instances. When an individual performs their 1st act of fraud and the fraud goes undetected, that individual will likely perform similar acts of fraud until the fraud is detected. A cannabis business must have controls to prevent and detect fraud early to prevent business ending consequences. If your cannabis organization is not identifying and tackling its fraud costs, it is vulnerable to competitors who lower their costs by reducing their risks to fraud.
Our cannabis experts can help you build fraud prevention controls and awareness in high risk areas such as cash management or inventory. We can perform internal routine audits for high risk areas and perform surprise audits of other critical areas of your cannabis business. We can help you stay out of the newspaper headlines by helping you proactively identify and manage your organizations fraud risks.