Fraud’s most commonly found by whistleblowers

The top three categories of corporate fraud involve asset misappropriation, financial statement fraud and corruption.

Financial statement fraud involves misstating the value of a company’s property, such as adding expenses or inflating a firm’s worth, and asset misappropriation involves theft of materials, money and ideas.

The Association of Certified Fraud Examiners (ACFE) released a report in 2018, finding the average loss for financial statement fraud was US$975,000; asset misappropriation and corruption were responsible for an average of US$125,000 and US$200,000 in damages.

A total of 2,690 cases were analyzed worldwide, and it was found that companies lost about $7 billion to fraud. Those that didn’t have internal anti-fraud controls lost about twice as much as businesses that did.

The study also discovered that external audits caught four per cent of frauds; internal reviews found 15 per cent. Reviews done by management found 13 per cent. The most, at 40 per cent, were found through tips.

This proves that companies should take stock in whistleblower tips and welcome them. According to the report, here in Canada 32 per cent of fraudulent activity is detected by tips; only five per cent of the cases were discovered by external auditors.

The ACFE also says about 40 per cent of the Canadian cases involved corruption and bribing of companies or government officials.

One of the big problems with fraud is that we trust and like the people we work with, and accusations are often brushed aside because we feel like we trust the employees and consider them peers or even friends.

One of the things we do at Forensic Restitution is a fraud risk assessment, and it’s based on the idea that if something is going on in an organization, someone knows about it. Companies should regularly perform fraud risk assessments.

Extramarital affairs are often a starting point for fraud. Expenses like dinners get put on the corporate credit card so one’s spouse won’t be able to see and question any of the expenses. Once those get justified, fraud can grow from there.

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