Fraud is complex and actually has many definitions. In a very general sense, fraud occurs when there has been some kind of intentional financial injury to another person by using false representations. However, to be more specific, fraud occurs when by surprise, trick, cunning, shrewdness or unfair means, a person, company or institution is cheated out of their assets either physical or financial.
Fraud comes in many shapes and sizes. It goes by several different names, including internal fraud, occupational fraud, or employee dishonesty. There are three basic types of fraud: asset misappropriation, bribery and corruption and financial statement fraud. In many fraud schemes perpetrated by employees, more than one type of fraud is present.
Fraud, theft or embezzlement occurring in any work environment is a product of several factors. These factors are corporate culture, personality of the owners and executive management, working conditions, control environment and level of honesty and integrity among the employees. If any of these factors are lax, then there is a possibility that fraud will occur.
Recent statistics show that asset misappropriation happens in over 91% of fraud schemes. This easily makes it the most common type of fraud, but statistics show that it is the least expensive fraud on a per fraud basis. The average asset misappropriation costs a company $150,000.
Bribery and corruption account for about 30% of all fraud that is uncovered. Bribery and corruption include schemes such as kickbacks, shell company schemes, bribes to influence decision-making, manipulation of contracts or substitution of inferior goods. The average bribery/corruption scheme is far more costly than asset misappropriation, at $538,000 per scheme.
The wrong thing to do is to jump to conclusions and confront the employee without hard evidence and only suspicions. Contact a fraud professional such as a Certified Fraud Examiner (CFE) who has the professional training and experience to gather the evidence and confirm the fraud is taking place.
A Fraud Risk Assessment (FRA) is an assessment of the potential for fraud to affect an organization’s ability to maintain operations and its reputation. It is a process that identifies and addresses an organization’s vulnerability to both internal and external fraud. In other words, it is a process that identifies where fraud has the potential to occur and who may be committing it.
The accountants’ main focus is on financial transactions and the generation of financial statements in accordance with GAAP (Generally Accepted Accounting Principles). Generally, their emphasis is on the accuracy of transactions and the accuracy of their reporting. Some CPAs or accounting firms work in the fraud area, but it is not their primary area or expertise.
A CFE has passed a comprehensive 8-hour examination testing four areas relating to fraud: (1) Financial Transactions and Fraud Schemes, (2) Fraud Prevention and Deterrence, (3) Fraud Investigation and (4) Law (as it relates to fraud). The CFE is specifically trained to identify and evaluate potential fraudulent activity and design remedies to address them if found.
Our work is charged on an hourly basis. Our hourly rate along with an estimate of the number of hours that will be required for the engagement will be shared with the client at the initial consultation. We offer a free 30 minute initial consultation to all potential clients.
If this occurs, we would meet with the owners and/or the appropriate level of management and discuss the issue. We would then proceed to verify our suspicions using the appropriate tools and techniques and gather the evidence to attest to or deny that a fraud is or is not occurring.
There is no known program or approach to fraud prevention that can make an organization totally secure against fraud and embezzlement activities. However, the risk of them occurring can be greatly mitigated if proper internal controls are installed. Management has to take a proactive approach to fraud awareness and employees should participate in anti-fraud training. A CFE can assist in instituting an on-going anti-fraud program that will not only work to deter fraud, but equip employees at all levels to be on the lookout for red flags that signal the potential for it to occur.
