Popular Frauds | Protect Your Organization

One Fraud… Two Fraud… Three Fraud…

No organization wants to wake up to find themselves suddenly the center of unexpected liability or unwelcome scrutiny due to fraud. Fraud costs organizations more if it’s ignored, and no matter what you think, your organization is not immune from it. The ACFE’s Report to the Nations on Occupational Fraud and Abuse states that the median loss caused by fraud was $145,000 – if you’re a small business, that could spell disaster. 22% of the cases in the study reported fraud loss of at least $1 million.
Fraud is a universal problem, it does not discriminate. Occupational frauds are those in which an employee, manager, officer, or owner of an organization commits fraud to the detriment of that organization.
There are three major types of occupational fraud: Corruption, Asset Misappropriation, and Fraudulent Statements. Commonly known as the fraud tree. Here’s a snapshot:
illustration type of fraud tree diagram

 Let’s break down each of these three types of fraud.

In many fraud schemes perpetrated by employees, more than one type of fraud is present.
Opportunities are created by poor internal controls and/or a lack of segregation of duties that allows one individual, or a small number of individuals in collusions, to override controls and gain access to company assets. It is often longer serving employees who are able to identify these opportunities because of their familiarity with the internal systems and control weaknesses
Asset Misappropriation
Asset misappropriation frauds occur the most often and are the easiest schemes to understand. An asset misappropriation might include things like cheque forgery, theft of money, inventory theft, payroll fraud, or theft of services.

Statistics show that 91% of fraud schemes involve asset misappropriation. This is the fraud that sits on top, but statistics show that it is the least expensive fraud on a per-fraud basis. The average asset misappropriation costs a company $150,000. The least expensive, but if you’re a smaller company, that could ruin you.

Bribery and Corruption

Second on the list is of frequent fraud schemes is bribery and corruption. This accounts for about 30% of all fraud that is uncovered. These schemes include kickbacks, shell company schemes, bribes to influence decision-making, manipulating contracts, or substitution of inferior goods. The average bribery/corruption scheme is far more costly than asset misappropriation, at $538,000 per scheme. And according to the ACFE 2014 Report to the Nations, corruption is the most common fraud across industries.

Financial Statement Fraud

Last on the list of popularity, (but the most expensive) the least common type of fraud is financial statement fraud. It occurs less frequently, on about 10% of all the reported fraud cases, but it’s easily the most expensive. The average financial statement fraud costs a company $2 million. This type of fraud revolves around the “tweaking” of financial statements in order to create financial opportunities for an individual or entity. This included fixing stock prices, increasing year end bonuses, favorable loan terms, or other indirect benefits. Think back to Enron!

It is easy to see how quickly the cost of fraud can rise. Could your company withstand a fraud the size of any of the above averages? Proactive fraud prevention and detection controls play a vital part in managing the risk of fraud. Another stat from the ACFEs Report to the Nations – whistleblower tips account for just over 40% of all reported fraud.
Fraud can be preventable. You just need to do something about it. Incorporate a strong compliance program that includes an ethics reporting system. And empower your employees to speak up when they see wrongdoing.
Then heed the advice from your doctor… call us in the morning!
Fraud Checklist

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