Fraud. It is a word that grabs the attention of us all. We stop typing, put our pens down, and listen intently for the juicy details that are sure to follow. The mere mention of the word can scare even the best of us, but what exactly is fraud?
Fraud is a white collared crime that is defined by Black’s Law dictionary as:
“A knowing misrepresentation of the truth or concealment of a material fact to induce another to act to his or her detriment.” [1]
In other words, fraud is the deliberate act of harming another by unfair means. There are many types of fraud. One type is internal or occupational fraud. According to the Association of Certified Fraud Examiners (ACFE), “… this type of fraud occurs when an employee, manager, or executive commits fraud against his or her employer.” [2] The ACFE reported that in 2020 the average occupational fraud costs companies $1.5 million dollars and lasted about 14 months before being uncovered. It is estimated that organizations lose 5% of revenue each year because of fraud.[3]
The fraud triangle is the most widely accepted model used to today to help explain why a criminal commits occupational fraud. Created by David R. Cressey, this model is based on the theory that three factors, when present, can lead to fraudulent behaviors – perceived financial pressures, perceived opportunity, and rationalization.[4], [.5] Data analytics and asset detection is essential in uncovering fraud and proving a crime has occurred. Numbers do not lie. 26% of occupational fraudsters were experiencing financial difficulties and 42% of occupational fraudsters were living beyond their means.[6]
Hiring an experienced accountant that has a background in fraud and forensics can be instrumental in determining any type of losses from fraud schemes. An expert can uncover millions in assets and help rectify the harm caused.
Any advice contained in this article, is not intended as a thorough, in-depth analysis of specific issues, nor a substitute for a formal opinion. If desired, we would be pleased to perform the requisite research and provide you with a detailed written analysis. Such an engagement may be the subject of a separate engagement letter that would define the scope and limits of the desired consultation services.
[1] Bryan Garner, ed., Black’s Law Dictionary. 8th Ed. (2004), s.v., “fraud.”
[2] Association of Certified Fraud Examiner. (n.d.). What Is Fraud? Fraud 101. Retrieved October 8, 2021, from https://www.acfe.com/fraud-101.aspx.
[3] Association of Certified Fraud Examiners. (n.d.). ACFE Report to the Nations: The Average Fraud Costs Companies More Than $1.5 Million. ACFE Report to the Nations. Retrieved October 8, 2021, from https://www.acfe.com/press-release.aspx?id=4295010563.
[4] Donald R. Cressey, Other People’s Money (Montclair: Patterson Smith, 1973).
[5] Association of Certified Fraud Examiners. (n.d.). The fraud triangle. The Fraud Triangle | Association of Certified Fraud Examiners. Retrieved October 8, 2021, from https://www.acfe.com/fraud-triangle.aspx.
[6] Association of Certified Fraud. (2020, April). ACFE report to the nations: 2020 global fraud study. Report to the Nations. Retrieved October 8, 2021, from https://www.acfe.com/report-to-the-nations/2020/.