Did you know that financial statement fraud accounts for only about 10 per cent of occupational fraud worldwide? However, it comprises the biggest loss, averaging around US$800,000 per incident.

That’s according to the Association of Certified Fraud Examiners (ACFE). It’s a scary stat for businesses, since it’s difficult to detect and can be potentially devastating to a company’s bottom line. Large sums of money can disappear quickly.

Financial statement fraud happens when a person intentionally leaves out or lies about financial statement amounts. It can happen almost innocently – when a company may be trying to get themselves out of a bit of money trouble. Many times, more than one person is involved in an effort to play with the figures to make the company (and the employees) look good.

Fraud usually starts on a small scale – such as altering invoices or falsifying accounts receivable ratios. Instances like these can be hard to detect, especially if the company’s financials do begin to improve, and those involved will have their crimes covered up. Problems begin to arise, however, when those small adjustments begin to snowball over time.

It could be too, that accounts get manipulated by the tendency for governments to work some magic with their own reports which we taxpayers see; this might elicit temptation from key company players to do the same. Take what happened to Ontario Auditor General Bonnie Lysk, for example. She spoke out about fake accounting in reference to the effect of green energy initiatives on electrical power prices.

The Globe and Mail’s media coverage of the story noted that $6 billion was shifted from expenses into assets, which was a future debt to be recovered between 2024 and 2042. A current balance sheet would show $6 billion receivable, except in five years it would start being recovered and drive up costs. This was actually signed off by three large accounting firms.

It makes you wonder: if the government’s doing this, it’s easy to see why someone who’s trying to sell a company for a few million dollars might be willing to do likewise to get some extra money out of the deal.