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Summing It Up

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Freed Maxick Talks Fraud, Forensic Accounting, and Business Valuation

 

Guidance for Businesses in Buffalo that mean business

Recently, Freed Maxick Directors Tim McPoland and Joe Aquino recorded a segment for WBEN930 AM’s Buffalo Means Business program focusing on two topics: fraud investigation and business valuation,

Freed Maxick Talks About Fraud and Business Valuation

You can hear their entire recording by clicking on the icon, but here are the highlights of their insights, observation and guidance:

Fraud and Forensic Accounting 

  • Today, the average embezzlement is in the $200,000 to $300,000 range, where 20 years ago, the average was in the $20,000 to $30,000 range
  • A fraud can go undetected for many years, and is typically discovered by accident
  • It is not that difficult to find and trace the beginning and path of fraud, but you don’t want to reveal your hand until all the trails are investigated and the scope of the fraud is uncovered
  • Securing all bank and accounting records makes the discovery of a fraud easier to pinpoint and prosecute
  • If you suspect fraud or embezzlement by an employee, call your CPA immediately and maintain confidentiality to begin an investigation

Business Valuation and Litigation?

  • Issues between shareholders who disagree about the value of a business are one of the key reasons why a business valuation expert is needed in a litigation matter
  • While not an exact science, a business valuation utilizes historical and projected financial and operational data, backed by market or industry specific financial and operational metrics
  • A professional business valuation expert will search for anomalies, non-reoccurring transactions, unreasonable executive compensation and other oddities that can affect the worth of a business, and then normalize their findings to reach a conclusion about the value of a business
  • There can be a crossover between fraud and business valuation in the case where the valuator discovers unusual or backdoor payments by a controlling shareholder that impact the worth value of the business.
  • It is important for a business to have a current, updated Buy/Sell agreement, which defines the valuation approach in various situations. 

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Ways That Financial Statements Can Reveal Corporate Fraud

At long last, the U.S. economy seems to be recovering from the effects of the recession. But at least one major financial risk remains — corporate fraud. The good news is: A fraud expert can help investors and companies minimize losses from fraudulent conduct by simply scrutinizing a business’s financial statements.

Fictitious finances

businessman_thief.jpgCorporate fraud often is concealed when a business intentionally misrepresents material information in its financial reports. These misrepresentations may result from overly aggressive estimates of figures, the misapplication of accounting principles and material omissions. For instance, financial statements may conceal expenses or liabilities or report fictitious revenues in order to make a business appear more profitable than it really is.

In order to cover fraud, a perpetrator often conceals or omits information that can damage or improperly change the bottom-line results appearing in financial statements. Such omissions might include:

  • Liabilities such as loan covenants or contingency liabilities.
  • Significant events that are likely to affect future statements, such as potential lawsuits, impending product obsolescence and new competition.
  • Accounting changes that materially affect financial statements and are subject to disclosure rules, such as methods of accounting for depreciation, revenue recognition or accruals.

Perpetrators also might engage in fraudulent manipulation, particularly in the areas of revenues, reserves, expenses and one-time charges. A falsified financial statement can improperly value sales transactions (by, for example, inflating the per unit price), recognize sales prematurely or report phantom sales that never occurred. On the other hand, expenses can be manipulated by simply delaying their recognition — whether to match expenses with their corresponding revenue or to avoid reporting a loss. Another scheme is to improperly capitalize expenses so they appear on the business’s balance sheet rather than on its income statement.

In many cases, fraudulent financial statements may show reserves that have been calculated using bad-faith estimates. For instance, a fraudster can justify a smaller amount of reserves simply by underestimating the percentage of uncollectible receivables. One-time charges, such as a charge for research and development costs for a specific product, or a write-off of goodwill, can further distort financial statement figures and help hide fraudulent activity.

Unusual trends and relationships

When fraud is suspected, a CPA can examine complex financial statements and uncover manipulation that might not be apparent to the untrained eye. A fraud expert typically begins by reviewing suspicious statements for unusual trends and relationships. Any leads are then followed by more intensive forensic accounting work. This may include analysis of journal entries, specific transactions, work papers and supporting documentation — going far beyond a standard annual audit.

Moreover, a CPA may employ several types of analyses. For instance, a vertical analysis compares the proportion of every financial statement item — or groups of items — to a total within a single year that can be measured against industry norms. A horizontal analysis compares current data with data from prior years in order to detect patterns and trends. And a financial ratio analysis can calculate ratios from the current year’s data and then compare those with previous years’ ratios for the business, comparable companies and the relevant industry. Of course, the expert must have tremendous experience in the subject industry and be able to recognize any noncompliance with Generally Accepted Accounting Principles.

Noncompliance is a huge red flag for financial statement fraud. The Association of Certified Fraud Examiners (ACFE) has identified several behavioral red flags, including executives who exhibit a cavalier attitude toward internal controls, live beyond their means, have excessive organizational pressure to perform, and are unwilling to share duties or information with colleagues.

fraudFraud costs

The ACFE has estimated that the median loss in financial statement fraud schemes is around $1 million. But there are other damages as well, such as the public relations damage that rogue executives who manipulate the numbers can cause. A qualified CPA can help limit your clients’ losses by finding critical omissions and manipulations.

© 2014

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Breaching the Walls of Unsecured Patient Data

By: Shawn M. Frier, CPA, CFE, CMPE Director

 

The focus of protected health information (PHI) privacy has increased a great deal due to the rise in data breaches. In the last two years at least one case of PHI data breach has been noticed in almost 94% of healthcare practices. The magnitude and frequency of the breaches has increased to such an alarming rate that if this trend continues, the average annual cost to healthcare industries could reach $7 billion dollars.

patient security breach

PHI breaches can happen easily if you’re not aware of the risks that exist, both inside and outside of the practice. Encrypting data helps protect patient data and can help you avoid costly breaches. These breaches, while costly, are usually due to simple human error. For example, an employee might walk away briefly to fetch paperwork, mistakenly leaving a laptop with patient data open. It only takes a glance or a second to download or retrieve that data. Smartphone’s are another high concentrated area for data breaches. Unfortunately, multi-tasking is a necessity and many physicians and staff use Smartphone’s to conduct business due to their easy accessibility. But smartphones are just as easily accessible to a data breach. A report published 2012 by a South Florida Institute; found that 50% of breaches in 2011 were from laptops or mobile devices. 80% of organizations surveyed stated that they allowed employees to use their own mobile device, and had not taken steps to ensure data security for personal devices.

Determine what needs to be encrypted

Assess which technology poses the highest risk of being stolen or accessed by an unauthorized user.  The most popular devices usually include phones, laptops, tablets and any portable hard or flash drive. You should put both physical and technical safeguards in place to minimize the amount of confidential data stored on encrypted devices. Steps healthcare providers can take to physically safeguard devices are:

  • Keeping an inventory of personal mobile devices used by healthcare professionals to access and transmit PHI,
  • Storing mobile devices in locked offices or lockers,
  • Installing radio frequency identification (“RFID”) tags on mobile devices to help locate a lost or stolen mobile device and,
  • Using remote shutdown tools to prevent data breaches by remotely locking mobile devices.

You can use technical safeguards such as accessing data on servers using remote access connection rather than downloading the data to a device. Other safeguards include:

  • Installing and regularly updating anti-malicious software (also called malware) on mobile devices,
  • Installing firewalls where appropriate,
  • Applying encryption to PHI,
  • Installing IT backup capabilities, such as off-site data centers and/or private clouds, to provide redundancy,
  • Putting into place biometric authentication tools to verify the person using the mobile device is authorized to access the PHI and,
  • Ensuring mobile devices use secure, encrypted Hypertext Transfer Protocol Secure (“HTTP”) similar to those used in banking and financial transactions.

Administrative safeguards are another reasonable approach when putting a plan together to secure data on mobile devices. For example, conducting periodic risk assessments of mobile device use, including an assessment of whether personal mobile devices are being used to exchange PHI and whether proper authentication, encryption and physical protections are in place to secure the exchange of PHI. Also establish an electronic process to ensure the PHI is not destroyed or altered by an unauthorized third party. These are just a few steps that administrators can take to help prevent or reduce data breaches within their practice.

If you have questions or concerns contact us here or give us a call at 716-847-2651.

 

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How Asset Based Lenders Can Help Customers Avoid Internet Fraud Schemes

Author: Mike Boeheim

Protect Your ABL’s Assets by Helping Your Clients Recognize and Stop Internet Fraud

fraudAs people flock to the Web to make purchases, they risk being snared by Internet fraud. Asset based lenders need to be aware of the latest scams that could affect your customers and impair debt service.

Popular Fraud Tactics

As you can imagine, cybercrime can take many forms, such as credit and debit card fraud, mobile phone transaction fraud, pay-per-click (PPC) scams, and, of course, identity theft.

Fraudsters can get very creative when “trolling” the Internet for opportunities. For instance, some might use malware to collect credit card information from unsecured merchant websites. PPC fraudsters also cause unsuspecting merchants to incur charges every time customers click on their ads. Then they redirect the customers to their website, thereby “stealing” the sale.

Help Your Clients Stop Internet Fraud

Determine whether your clients are taking appropriate steps to protect themselves against Internet fraud. Ask whether they’re analyzing transactions and identifying which are at a higher risk for cybercrime. Some examples of online order form red flags include customers who use drop shipment forwarding addresses, or post office boxes and payments split between multiple debit and credit cards. All of these can signal the use of stolen cards.

According to a survey by technology provider FIS’s ClearCommerce®, an e-payment processing and fraud prevention service;

other warning signs you need to be aware of include differences between billing and shipping addresses, the country of the billing and IP address, or the area code and the billing ZIP code. International shipping addresses — especially those in former Eastern Bloc countries or the Middle East may be suspect, Of course, just the existence of a red flag doesn’t mean that fraud has taken place. But it does mean that borrowers should take a closer look at the potentially high-risk order before processing it.

Asset Based Lenders Need to do Due Diligence too

As part of your due diligence, ask your clients whether they’ve taken steps to secure their IT against fraud. Transaction screening software can take a lot of the guesswork out of identifying these high-risk transactions. Another security measure you should pass along to your clients is to couple automated address verification services with card security code systems. This will not only verify the cardholder’s address, but also crosscheck the security code on the back of the card.

All borrowers should employ and maintain encryption codes, antivirus software, firewalls, and operating system and browser updates. By taking these measures, the client will be protected on the merchant side, as well as when ordering for its own materials, downloading, or sharing information with any supply chain partners.

Don’t go it alone

Of course, maintaining secure, efficient computer systems can be quite daunting and way outside the bailiwick of most entrepreneurs. So, if one of your borrowers simply can’t afford a dedicated IT professional, a CPA can help them tackle the cybercrime prevention tasks mentioned above on an as-needed basis.

Fraud Awareness3Freed Maxick’ s Asset Based Lending Team works with dozens of asset based lenders across the country. We can assist you in evaluating the integrity of your customers’ collateral by performing pre-loan surveys and rotational collateral monitoring field examinations.

Freed Maxick also provide specialized forensic accounting services.

If you or your clients need assistance in fraud detection, prevention or remediation, contact us, or call me directly at 716-847-2651.

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How to Embezzle from a Company

Occupational Fraud Within An Organization

The Association of Certified Fraud Examiners estimates that a typical organization loses 5% to 7% of their gross revenues each year due to occupational fraud and abuse. A presentation on Monday, September 23 at The University at Buffalo's Center for Entrepreneurial Leadership will examine the different types of employee theft and fraud, the reasons employees engage in it, tips to prevent theft and fraud in the work place, red flags to help the employer identify it, and lastly what to do if you expect fraud is occurring.

UB Center for Entrepreneurial Leadership
UB Downtown Gateway
77 Goodell Street Classroom 208
Buffalo, NY 14203

Monday, September 23rd, 2013 - 5:30 to 7:30 pm

Click here to register!

Shawn M. Frier, CPA, CFE, CMPE is a Director in Freed Maxick’s Enterprise Advisory Services Practice. Prior to joining the Firm, Shawn worked for a “Big 6″ accounting firm in New York City.

Shawn is responsible for the overall planning, supervision and completion of client engagements, audits, reviews, compilations, bookkeeping, and tax returns. He has prepared financial statements in various industry formats including consolidations and has coordinated and reviewed work performed by internal auditors, assisted numerous entities in preparing annual budgets and in tax planning and has prepared audit findings for presentation to management. In addition, Shawn is involved with supervising staff, recruiting, training, and internship programs.

Over the years, Shawn has obtained a wide range of experience with manufacturing, financial institutions, distribution, physician groups, not-for-profit, general services industries and SEC and regulatory accounting matters.

A graduate of the State University of New York at Buffalo, Shawn is a member of the Buffalo Chapter of the New York State Society of Certified Public Accountants, the American Institute of Certified Public Accountants and the Association of Certified Fraud Examiners. He is President of the New York State Medical Group Management Association, and serves as a speaker for their local and national events. In addition, he serves on the Board of Directors, is the past Treasurer for Autistic Services, Inc, and is the current Assistant Treasurer for Jewish Federation Housing. In 2011, Shawn was named a winner of Buffalo Business First’s Healthcare 50 Award, which recognizes professionals serving the medical profession and their contributions in improving the quality of healthcare in Western New York. In 2006 Shawn was recognized for his business and community leadership by Business First as a “Forty Under 40” award recipient.

Areas of Expertise

  • Serving manufacturing, general service, and physician groups

  • SEC and regulatory accounting matters

  • Strategic and business planning

  • Leadership development

  • Conflict identification and resolution

  • Team building

  • Recruiting

    For more fraud related blog posts, check this out!

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Learn the Latest on Fraud

Fraud Awareness Workshop: NYC Sept. 24-26

The Fraud Awareness Workshop is a three-day program presenting best practices in the prevention and detection of borrower fraud while also recommending fraud prevention procedures for a variety of ABL disciplines. Reinforcing each learning point through numerous case studies, the goal of the program is for participants to understand their roles in mitigating the risk of fraud within their organizations.

Speakers:

Michael Boeheim
Michael A. Boeheim, CIA, CFE is a director in Freed Maxick's Asset Based Lending Practice. Mike joined the Firm in 1995 and has over 30 years of experience in the ABL industry. He is responsible for staff supervision, quality control and developing and maintaining lender relationships.

Mike also has experience in portfolio acquisition due diligence and forensic examination assignments of troubled loans involving fraud. He served as an instructor and developed the fraud programs for the Commercial Finance Association Fraud Awareness Workshop and the European Fraud and Audit Conference, and has been a speaker for a number of organizations on various fraud related topics. Mike's articles have been published in the Secured Lender and the ABF Journal. He has provided Grand Jury testimony and was recognized for outstanding service as an instructor to the Asset Based Financial Services Industry.

A graduate of the State University of New York at Buffalo, Mike is a Certified Internal Auditor and Certified Fraud Examiner.

Jerry Oldham
Jerry Oldham is co-founder, Chairman and CEO of 1stWEST Financial Corporation.  Mr. Oldham has an extensive background investigations and corporate due diligence background and a broad senior management resume in commercial banking and corporate and real estate finance.  He frequently serves as a consultant or expert witness in litigation and settlement negotiations involving complex corporate finance, real estate, banking and lending practice issues, having assisted in the settlement of hundreds of lawsuits over the years.  Additionally, Mr. Oldham often acts as a consulting team leader to manage the overall due-diligence process on investment decisions for 1stWEST clients.

Mr. Oldham received his B.S. Degree in Finance and Real Estate from The Pennsylvania State University and his M.S. Degree in Banking and Finance from Colorado State University.  While at Penn State he was President of the College of Business Student Council, and was awarded the Dean's Cup upon graduation. He is recognized for his banking research and publications in the areas of commercial loan pricing and profitability analysis and due-diligence. 

Mr. Oldham is a graduate of the American Bankers Association's Undergraduate and Graduate level studies programs and holds the ABA's Certified Commercial Lender designation.  Jerry also serves on the Board of Governors of the Education Foundation of the Commercial Finance Association and as a member of its Executive Committee and Education Committee. Mr. Oldham and/or 1stWEST are also members of the Association for Corporate Growth (ACG), the Small Business Investor Alliance (SBIA) and the College and University Professional Association for Human Resources (CUPA-HR).

Douglas Bull
Doug Bull is the Team Leader, Field Examination Services with JPMorgan Chase. In addition to serving as an instructor for the Commercial Finance Association, he was the primary author of CFA's Field Examiner School. He was named Best Newcomer Lecturer 2006 for the Asset Based Finance Association, UK. Prior to joining Dopkins in 2000, Mr. Bull gained 16 years of experience from public accounting and the private sector with a 10-year concentration in asset-based field examinations, most recently as Vice President, Collateral Examination Manager at HSBC Bank. At HSBC, he supervised an internal staff and coordinated the outsourcing of field examinations to various firms.

 

The program will meet at:

Squire Sanders
30 Rockefeller Plaza
New York, NY 10112 


Program Times:
Sep 24: 8:30 a.m. – 5:00 p.m.
Sep 25: 8:30 a.m. – 5:00 p.m.
Sep 26: 8:30 a.m. – 1:00 p.m.

Continental breakfast will be served each day beginning at 8:30 a.m.  The program will begin at 9:00 a.m. Lunch will also be provided each day.

Program Level: Intermediate

Recommended for: Any staff seeking to minimize their institutions' fraud risk.
 

 

Commercial Finance Association is registered with the National Association of State Boards of Accountancy (NASBA) as a sponsor of continuing professional education on the National Registry of CPE Sponsors. State boards of accountancy have final authority on the acceptance of individual courses for CPE credit. Complaints regarding registered sponsors may be submitted to the National Registry of CPE Sponsors through its website: www.learningmarket.org



Program Fees:
Career Services: $298
Career Services with Textbook: $325
Member: $745
Member with Textbook: $770
Non-Member: $945
Non-Member with Textbook: $995

As a special offer, you may purchase the industry textbook, Asset-Based Finance - Proven Disciplines For Prudent Lending at the discounted price of $25 (regularly $49.95) for CFA members, and $50 (regularly $79.95) for non-members, if you do so with your registration.

To attend, please check out the EVENT INFO HERE.

Freed Maxick ABL Services is one of the nation’s largest providers of ABL field exam outsourcing services to asset-based lending and other financial institutions that have granted loans, increased credit lines, reduced credit lines, or reduced loan loss exposure.

Read some of our ABL thought leadership on our “Summing it Up” blog.

 

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How Cyber Threats are Targeting Online Businesses

Online business is the new "Main Street" of America. According to the U.S. Chamber of Commerce, 74% of small businesses have a website online; many of these solely conduct business through their website. With an uptick of devices that increases social media presence (i.e. the smart phone, tablets, apps); businesses are able to conduct more of their daily activities online than ever before. This drive to do business or maintain a website online does not just apply to corporations, but to entrepreneurs looking to start or grow their business online.

While companies large and small are increasing their online business, larger companies have the capability to improve their defenses and resilience against cyber threats, leaving the small companies ripe for the picking for cyber criminals. Theft of digital information has become the most commonly reported fraud. Whether a business is utilizing, or thinking of utilizing cloud computing or just using email and maintaining a website, cyber-security should be part of the plan. It is a business’s responsibility for creating a culture of security that will enhance business and consumer confidence.

In order for businesses to stay a step ahead of cyber criminals these steps should be taken to increase security:

  • Train your employees in security principles- establishing basic practices and policies for online use, such as creating strong passwords, appropriate internet use, and rules on how to handle and protect customer information and vital data.

  • Protect computers, networks from cyber attacks- “cleaning” computers is one of the most vital things you can do to help prevent cyber attacks. For example having security software, web browser, and operating systems are the best defense against malware, viruses or other online threats.

  • Provide a firewall for your computer- a firewall is a set of related programs that prevents outsiders from accessing data on private network information. This includes ensuring that if an employee is working from home that their home system has firewall protection. One of the most common mistakes is downloading firewall programs but not “enabling” them; essentially “turning them on”.

  • Secure Wi-Fi networks- make sure that any Wi-Fi networks you have for your business is secure, encrypted and hidden. You can hide information by setting up your wireless access point or router so that it doesn’t broadcast a network name, and password protect access to the router.

  • Limit employee access to data- do not provide any one employee to all data systems. Employees should only be given access to the specific data systems that they need to perform their jobs, and should not be able to install any software without permission.

describe the imagePCI Compliance is also a big part of being secure online. PCI DSS is the Security Standards Council that was put into place to ensure that businesses storing, transmitting, and processing payment card data, are not putting their customers or their business at risk of data theft or fraud. The PCI DSS has four levels of compliance, with number one set as the highest level. The level that your business requires depends on:

  1. The volume of transactions you process, and

  2. How you process them.

Cyber-security is a team sport. Taking actions that will better protect both vital data and your business operations will have positive consequences for the security of all businesses, communities and the country. Computers and networks are interconnected through cyberspace; that means that both public and private sectors share responsibility.

Freed Maxick CPAs
Freed Maxick’s tax team and enterprise risk management team want to make sure that your online business is secure. Our firm is registered with the Payment Card Industry Security Standards Council, LLP (PCI SSC) and has Qualified Security Assessor’s certified by the Council to validate an entity’s adherence to the PCI DSS.  Contact us and connect with our experts.

 

 

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Fraud in the Workplace Event May 16th

The RMA (Risk Management Association) Buffalo-Chapter Presents:

Fraud in the Workplace

With Guest Speakers:

Adrienne Schreier
Senior Manager Freed Maxick, CPAs. P. C.

Shawn M. Frier
Director Freed Maxick, CPAs, P. C.

• How does Fraud affect you?

• Examples of Fraud

• Types of Fraud

• Common Fraud committed by employees

• Red Flag indicators for Fraud

• How to prevent fraud

Thursday May 16, 2013
8:00 a.m. Coffee/Breakfast, 8:30 a.m. Presentation

The Buffalo Club
388 Delaware Ave, Buffalo, NY
$25 for RMA members/$30 for RMA non-members/$10 Students

There will also be a Q&A period following presentation.

For questions and reservations, please contact:
Ann Berardi at: aberardi@mtb.com

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Fraud Awareness Workshop: April 17-19 | Best Practices

Best Practices in the Prevention and Detection of Borrower Fraud!  

Mike Boeheim, CIA, CFE and Director at Freed Maxick ABL Services will take part in the upcoming Fraud Awareness Workshop presented by the CFA on April 17th-19th.

The event is a three-day program presenting best practices in the prevention and detection of borrower fraud while also recommending fraud prevention procedures for a variety of ABL disciplines. Reinforcing each learning point through numerous case studies, the goal of the program is for participants to understand their roles in mitigating the risk of fraud within their organizations.

This is a must attend for any staff member seeking to minimize their institutions' fraud risk. 

Program Times:
Wednesday, April 17: 8:30 a.m. - 5:00 p.m.
Thursday, April 18: 8:30 a.m. - 5:00 p.m.
Friday, April 19: 8:30 a.m. - 1:00 p.m.

Continental breakfast will be served each day beginning at 8:30 a.m.  The program will begin at 9:00 a.m. Lunch will also be provided each day.

Program Level: Intermediate 


April 17 - 19, 2013

Event Start Time: 8:30 a.m.
Troutman Sanders, LLP
The Chrysler Building
405 Lexington Avenue
New York, NY 10174

Follow links to Register or for more information

Member: $745 
Non-Member: $945  

Sign Up Today! 



ABLTo gain more insight into fraud and Asset Based Lending issues, check out related blog posts on our "Summing it Up" blog. You can also get a free copy of the keynote presentation delivered at the Commercial Finance Association Fraud Awareness Program Workshop. 

We’re pleased to offer a complimentary copy of this valuable resource. 
Inside includes:

  • 11 common fraud schemes

  • Critical management pressure points that lead to fraud

  • 6 red flags that every asset based lender needs to be on the lookout

  • Recognizing irregularities in  source documents, accounts payables and financial statements

  • 9 common inventory fraud schemes and deterrents

For information about our ABL Services team and related services,
check us out on the web.

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Occupational Fraud: Could Your Office be at Risk?

Report Sheds Light on Fraud Perpetrators

Author: Adrienne Schreier

In its 2012 Report to the Nations on Occupational Fraud and Abuse, the Association of Certified Fraud Examiners (ACFE) estimates that the typical organization loses 5% of its revenues to occupational fraud every year. The median loss in the ACFE’s survey of almost 1,400 fraud cases was $140,000, and more than 20% of these cases resulted in losses of at least $1 million.

The numbers are alarming, as few companies can afford such losses. Perhaps more surprising are the ACFE’s findings related to fraud perpetrators. The employees behind such costly schemes aren’t your average criminals.

Tone at the top

Although it’s easy to place the blame for occupational fraud on lower-level employees, research tells another story: 42% of the perpetrators in the ACFE survey were nonmanagement, but 38% were managers and 18% were owners or executives.

And, in fact, the higher the thief’s position in the company, the more costly the fraud. Owners and executives were responsible for losses that were approximately three times higher than managers instigated. For their part, managers rang up losses about three times higher than regular employees caused. The ACFE attributes such statistics to the fact that those with more authority have greater access to their company’s assets. They’re also in a better position to override internal controls. Not surprisingly, the study also finds that the amount of fraud losses increases with perpetrators’ tenure and education — which typically are associated with higher positions and greater trust.

Other notable findings

Certain departments provide greater opportunities for fraud. Accounting, operations, sales, executive / upper management, customer service and purchasing areas together accounted for 77% of all cases.

Another important finding is that most occupational thieves aren’t career criminals. Of the 860 cases in the ACFE study (where information was available), only 6% involved a perpetrator who had previously been convicted of a fraud-related offense. And of 695 cases with information on the perpetrator’s employment history, 84% of them had never been punished or terminated by an employer for fraud.

Under pressure

Most fraud perpetrators turn to theft because they’re experiencing some type of pressure — at work, in their personal lives or both. The pressure could be financial — stemming from debt, addiction, gambling losses, poor investments, medical bills, divorce, or “keeping up with the Joneses.” Or pressure may come from supervisors with unreasonable performance goals or from company shareholders with high earnings expectations.

Frequently, occupational thieves are motivated by anger and dissatisfaction with their manager or the company’s leadership. Their anger may be fueled by a perception that management’s own ethics and integrity are lacking. In rare cases, perpetrators draw personal satisfaction from outsmarting their boss or the system.

Prevention tips

The ACFE report makes several recommendations to employers that want to prevent fraud:

Set up fraud reporting mechanisms. Typically, this means a confidential tipline accessible to both internal and external sources. As in previous surveys, the ACFE report found that such tiplines were one of the most effective methods of catching occupational thieves.

Provide targeted fraud-awareness training. At a minimum, a qualified fraud expert should explain to employees and managers the actions that constitute fraud, how fraud harms everyone in the organization and how employees can safely voice their suspicions. ACFE research shows that organizations with antifraud training programs experience lower losses and schemes of shorter duration than those without.

Educate on the characteristics and behavior of fraud perpetrators. It’s important that managers and employees be able to spot red flags — and know how to report them.

No program can prevent all fraud, but following these tips should help you reduce its incidence in your organization. When you know how to detect fraud schemes, you can stop them quickly and thereby reduce overall losses. In addition, potential perpetrators may be more hesitant to steal if they know that management and co-workers are on the lookout for fraud and have the means to report it.

Don’t go it alone

A little knowledge about fraud can go a long way, but companies can get themselves in trouble by acting too hastily on mere suspicions. Encourage your clients to retain fraud experts who have experience performing thorough and comprehensive investigations.     

If you have any questions about fraud perpetrators or any other issue, give us a call at 716.847.2651, or you may contact us here.

occupational fraud

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