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Is Your Company Impacted by Occupational Fraud?

Is it possible that 5% of your company’s revenues are lost to fraud every year? That and other alarming findings are reported in the Association of Certified Fraud Examiners (“ACFE”) 2012 Report to the Nations on Occupational Fraud and Abuse, based upon the organization’s global survey (“2012 Survey”). This article highlights the information provided in the 2012 Survey regarding the types of frauds most commonly committed, and how frauds are typically detected.

Nature of Occupational Fraud

While the median loss from occupational fraud is $140,000, more than one-fifth of frauds cause losses of at least $1 million. The ACFE research indicates that occupational fraud typically falls into one of three categories:

Asset misappropriation – the intentional illegal use of a company’s property or funds for one’s own unauthorized purpose (e.g., theft of cash, false billing schemes and artificial expense reports).

Corruption schemes – the abuse of influence or power within a company in order to effect a business transaction for personal benefit (e.g., bribery).

Financial statement fraud – the intentional misstatement or omission of material information in a financial report (e.g., reporting of fictitious revenue).

The following charts depict the frequency and costs of fraud cases reported in the 2012 Survey. It is interesting to note that while asset misappropriation was the most frequent type of scheme reported to the ACFE (occurring in approximately 87% of all reported cases), the associated median loss of $120,000 was the lowest among the three fraud categories. Conversely, financial statement fraud accounted for approximately 8% of the cases reported to the ACFE but resulted in the highest median loss ($1,000,000) among the three fraud categories.

Fraud Detection and Prevention

As a business owner or trusted advisor to companies, it is important to understand how occupational frauds are detected and what companies can to do curtail it. The adjoining chart depicts the methods by which fraud was detected, according to the 2012 survey. By far, most fraud is discovered through tips, the majority of which come from employees of the victim organization.

Companies, and their advisors, should contemplate the implementation of an anti-fraud program. At the very least, staff should be educated as to what constitutes fraud, how fraud harms everyone in the company, and how to report suspicious activity. ACFE research indicated that companies with under 100 employees are particularly vulnerable to fraud, due to fewer resources available for employee training and segregation of duties that improve fraud detection.

Assistance

The nature and the amount of the fraud can be quantified with the help of a forensic accountant. The Gettry Marcus team is experienced, well trained, and holds the following designations: Certified in Financial Forensics (CFF), Certified Fraud Examiners (CFEs), Master Analyst in Financial Forensics (MAFF) and Diplomat of the American Board of Forensic Accounting (DABFA). Senior team members have extensive knowledge of data mining techniques and other fraud detection methods. Several members have contributed to a book, Financial Forensics Body of Knowledge, a comprehensive guide for forensic and forensic accounting published by Wiley in 2012.