Fraud: Could It Happen To You?

Chris Roush | November 17th, 2010

The 12-year employee at a city school managing adult education programs had her colleagues’ respect. But she made lavish purchases to redecorate her home and constantly gave gifts to others, and some wondered where the money was coming from.

As it turned out, the money was coming from $32,000 in embezzled funds paid to the school by enrollees in the adult education program over a two-year period. Although she apparently destroyed the financial records, forensic accounting professionals could reconstruct the activity using the school’s enrollment records.

According to the 2010 Report to the Nation on Occupational Fraud & Abuse by the Association of Certified Fraud Examiners, the typical organization loses 5 percent of its annual revenue to fraud. The group estimates that the potential financial loss to organizations across the world due to fraud is at least $2.9 trillion dollars. The median loss in the study is $160,000, while nearly one-quarter of all frauds in the study top at least $1 million.

When you institute anti-fraud controls, your organization experiences significantly lower losses and time to detection. The ACFE recommends the following steps to decrease the occurrence of fraud within your organization:

–          Institute a fraud reporting mechanism. This could include a hotline to receive tips from internal and external sources. The ability to report anonymously and confidentially is important to the success of the hotline.

–          Provide employee education. Staff members are your top fraud detection method, and they will be motivated to help detect fraud once they understand how it hurts everyone in the company. Knowing what constitutes fraud and how to report questionable activity can help the organization experience lower fraud losses.

–          Hold surprise audits. The ACFE notes that surprise audits are an effective but underused tool in the fight against fraud. Surprise audits can be useful not only in detecting fraud, but also creating a perception of detection, and become a strong deterrent against potential fraud.

Fraud can happen to anyone. By improving your internal controls, you can decrease the likelihood of fraud occurring in your organization. Ask your accounting professional to assist you in this process.

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