Fraud and Embezzlement

Interesting Facts About Fraud – Part I of a Continuing Series

BY: CHERYL Y. HEUSSER, CPA

Given the state of today’s economy, it isn’t surprising to learn of more and more cases of fraud and embezzlement. People have become increasingly desperate to make more money, produce greater profits, and meet financial covenants for their businesses. Sometimes desperate times lead to desperate behavior.

This year, the Association of Certified Fraud Examiners released the “2010 Report to the Nations.” The report summarized information and data based on a study of almost 1,900 cases of reported and investigated fraud that occurred worldwide from 2008-2009. The results are astonishing:

  • It was estimated that the typical organization loses 5% of its annual revenue to fraud. For a company with gross revenues of $1,000,000, this equates to $50,000 per year!
  • Smaller organizations are disproportionately victimized by fraud, mainly due to a lack of internal controls used to deter fraud.
  • The average fraud lasted a median of 18 months before being detected.
  • A majority of the frauds were discovered by “tip.”
  • More than 85% of the fraudsters had never been previously charged or convicted of a fraud-related offense.
  • Most frauds were committed by someone in accounting, operations, upper management, or sales.
  • The higher the fraudster’s position within the organization, the higher the average losses.
  • The most common behavioral “red flags” displayed by the perpetrators were that they were living beyond their means and experiencing financial difficulties.

While the results of this study may sound astounding, what is even more alarming is that of the millions of companies in the United States alone, most frauds continue to go undetected even though warning signs may be pointing right to the crime!

Look for information to help learn what the warning signs are in future editions of the Snyder Cohn newsletter and on our website.