Litigation + Valuation Perspectives

Demystifying Valuation, Economic Damages + Forensic Accounting

Fraud: 2016 Report to the Nations

Every two years the Association of Certified Fraud Examiners issues its bi-annual study known as the Report to the Nations on Occupational Fraud and Abuse. The study looks into the costs, schemes, perpetrators and victims of occupational fraud. According to the study, occupational fraud is “the use of one’s occupation for personal enrichment through the deliberate misuse or misapplication of the employing organization’s resources or assets”.

The 2016 study issued earlier this year identified three primary types of occupational fraud: corruption, asset misappropriation and financial statement fraud.

Asset misappropriation is a scheme in which an employee steals or misuses the employing organization’s resources (e.g., theft of company cash, false billing schemes or inflated expense reports). These types of schemes accounted for over 80% of the cases in the 2016 report with median losses of $125,000 per occurrence.

Small organizations (less than 100 employees) suffered nearly 1/3 of the cases and had median losses of $150,000. Most of the small organization victims did not have anti-fraud controls in place. Less than 25% of the small businesses had implemented fraud training for their employees or management.

The size of the loss suffered by the organization was directly correlated with the tenure of the employee committing the fraud. The longer the employee had been with the organization the higher the amount of loss.

Most perpetrators exhibited at least one of six of the most common red flags associated with occupational fraud:

  • Living Beyond Ones Means
  • Financial Difficulties
  • Unusually Close Association with Vendor/Customer
  • Wheeler-Dealer Attitude
  • Control Issues, Unwillingness to Share Duties
  • Divorce/Family Problems

Unfortunately, over half of the organizations in the survey received no recovery of their losses.

Prevention is key! Organizations must be willing to invest now in prevention or risk greater loss from fraud later.

For more information about the Report to the Nations, see the articles here.

By Melissa Loughlin-Sines, CPA, CFE, CVA, CFF, ABV