Could Fraud Happen in Your Organization?

Do You Have a Foreign Financial Account?
March 5, 2012
What are Tangible Personal Property Schedules?
March 15, 2012

Could Fraud Happen in Your Organization?

By Kevin Peters

“Fraud, by its very nature, does not lead itself to being scientifically observed or measured in an accurate manner.  One of the primary characteristics of fraud is that it is clandestine or hidden; almost all fraud involves the attempted concealment of the crime.”  (2010 Report to the Nations; Association of Certified Fraud Examiners;  That quote from the 2010 Report to the Nations, issued by the Association of Certified Fraud Examiners underscores the critical importance of all organizations to address fraud risk factors. 

Periodically, the Association of Certified Fraud Examiners (ACFE) publishes their findings and recommendations in their “Report to the Nations”.  The 2010 Report is the first report to include cases from countries outside of the U.S.  The report is based upon 1,843 cases of fraud occurring between January 2008 and December 2009. 

Some of the Report’s findings include:

  • Survey participants estimated the typical organization loses 5% of its annual revenue to fraud
  • Small organizations are disproportionately victimized by occupational fraud due to overall lacking of anti-fraud controls.
  • Anti-fraud controls appear to help reduce the cost and duration
  • Frauds committed by owners/executives were more than 3X as costly as fraud committed by managers
  • More than 80% of the frauds were committed by individuals in one of 6 departments:  accounting, operations, sales, executive/upper management, customer service or purchasing
  • More than 85% of fraudsters had never been previously charged or convicted for a fraud related offense
  • Fraudsters often display warning signs that they are engaging in a fraud.  The most common behavior was living beyond their means (43%) followed by experiencing financial difficulties (36%)
  • Employee education is a key foundation of preventing and detecting fraud. 

What can you do?  There are many things to consider for any organization, regardless of size.  Employee training and education is a key consideration.  It is vital to maintain an open door policy and overall atmosphere of communication to allow all employees the opportunity and freedom to report any suspicions.  Consider implementing an internal audit function including surprise “audits” of different higher risk areas/transactions.  Management should develop and periodically review fraud risk assessments.  Other areas to consider include:  level of oversight and review by top management, segregation of duties, mandatory vacations and job rotations.  “Tone at the Top” is also of great importance.  The Report also recommends having proper support programs in place to assist employees that are struggling with addictions, mental/emotional health family or financial problems. 

Fraud can happen in any organization by any employee.  Each organization should consider what steps they can take now.  The old adage, “an ounce of prevention is worth a pound of cure” certainly would apply with respect to proper fraud prevention controls. 


2010 Report to the Nations; Association of Certified Fraud Examiners;

During Blackburn, Childers and Steagall, PLC’s continuing professional education (CPE) seminar scheduled for June 14 at Meadowview, we will include a session on fraud indicators and related controls.  Please visit this link for information regarding this CPE seminar.

Comments are closed.