Fraud in Corporate America

The latest Report to the Nations On Occupational Fraud and Abuse, the biennial study of global fraud by the Association of Certified Fraud Examiners, finds that organizations lose an average of 5 percent of revenues to fraud each year, with a median loss of $140,000. However, just over one-fifth of fraud schemes results in losses topping $1 million. Perhaps even more disturbing was the median length of time before the frauds were detected: 18 months. And, that's not all; the study found that almost half of companies were unable to recover the amounts they lost. Treasurers will want to take note of several specific findings from the study. For starters, asset misappropriation schemes accounted for nearly 90 percent of the frauds. The schemes included making fraudulent disbursements, recording ghost employees, altering check payees, and submitting fictitious expenses. However, the most expensive fraud type was financial statement fraud, with a median loss of $1 million. Asset misappropriation frauds resulted in a median loss of $120,000 -- a lower number, but still high enough to do real damage to a smaller organization. What's more, businesses with fewer than 100 employees make up nearly one-third of victims. In the U.S., employees, other than management, made up about 43 percent of perpetrators, while managers accounted for about one-third of criminals. While owners and executives accounted for less than one-fifth of frauds, the median loss resulting from their schemes was the highest: $373,000, versus $50,000 for employee fraud. Men accounted for just under two-thirds of all perpetrators. About 42 percent of criminals had been with their firms for one to five years. About half had a college or postgraduate degree. More than four-fifths had never previously been terminated or punished for a fraud. While the statistics are sobering, the Report provides several guidelines finance professionals can use to reduce the chances that their firms are victims.