Key Fraud Facts – Impact on U.S. Companies

The potential for fraud exists in every company regardless of location and industry served. The unfortunate reality is some people will engage in behavior that takes money from the company and attempt to do so over an extended period. The longer they can maintain the scheme, the more money, and resources they can take from the company. If a company has not experienced fraud before, the need for anti-fraud policies, procedures, and controls may not seem urgent. For companies that have been a victim of fraud, the need for such controls cannot be overstated.

In either situation, it’s important to understand key fraud trends so effective measures can be implemented. In prior blog posts, we have analyzed fraud trends and behaviors using information compiled in the 2018 Report on Occupational Fraud & Abuse. The information offered was based on global industry findings and lacked regional flavor. To help clients, prospects, and others understand key fraud trends in the United States, Wilson Lewis has compiled a list of key findings from the study below.

Key U.S. Fraud Data

• Common Fraud Schemes – The study examined the most common fraud schemes by region and found 30 percent of reported cases in the U.S. resulted from corruption, 26 percent from billing manipulation, 17 percent from expense reimbursements, 15 percent from check and payment tampering, and 14 percent from cash larceny. Other dishonorable mentions include payroll, financial statements, and register disbursement fraud.
• Fraud Detection Method – The study also examined the fraud detection method of the cases reported and analyzed. 37 percent of cases were detected by a tip, 14 percent by management review, 13 percent by internal audit, 9 percent by accident, 5 percent by account reconciliation, and another 5 percent by document examination. Less frequent detection methods included notification by law enforcement, surveillance, IT controls, and employee confession. While a variety of detection methods proved effective, it’s obvious a reporting hotline or other means of submitting a tip is most effective and should be part of a comprehensive fraud prevention program.
• Common Anti-Fraud Controls – When looking at cases where fraud was committed, the study found 73 percent used a conduct policy, 69 percent had an external audit of the financial statement, 62 percent offered employee support programs, 56 percent offered a fraud reporting hotline, 49 percent offered fraud training for employees, 48 percent offered fraud training for management, 47 percent had a formal anti-fraud policy and 12 percent offered rewards for whistleblowers. Other anti-fraud controls included surprise audits, a dedicated fraud department, job rotations, mandatory vacations and data monitoring/analysis.
• Authority Impact on Fraud – The study also examined what role a preparator played in the median loss per incident. Of the 1,000 cases reported, employees committed 48 percent, managers committed 31 percent, and owners and executives committed 18 percent. The median loss for employees was $50,000, managers were $150,000, and owners and executives were $637,000. It’s clear the group that poses the highest risk in terms of volume is employees, but those who can do the most financial damage are employees and executives. Bottom line: Your fraud prevention program needs to include methods to prevent behavior at each level in the company.

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Implementing a fraud prevention program is essential to protecting the company from loss and other damage. While there is not one measure that can protect you from every possibility the information provided above offers insights into key trends and the most prevalent behavior. If you need assistance with a fraud investigation, developing a fraud prevention program or have related questions, Wilson Lewis can help! For additional information, please call 770-476-1004 or click here to contact us. We look forward to speaking with you soon.