A recent story in the Toronto media provided news about a fraudster who ripped off her employer New Vision Toronto for almost $1 million. The fraudster was sentenced to a six and half year prison sentence and was ordered to make repayment to her victims. Of note, in a victim impact statement, a staffer at the charitable organization offered the comment that the organization had chosen to “trust” the fraudster. Far too often, in the aftermath of occupational fraud, we have seen too much reliance placed on trust.
The Association of Certified Fraud Examiners (ACFE) is the world’s largest anti-fraud organization. The ACFE publishes a report to the nations – a global study on occupational fraud and abuse. Occupational fraud is fraud committed against an organization by its own officers, directors, or employees. According to the ACFE, occupational fraud is likely the largest and most prevalent threat.
The most recent report was published in 2018. It is based on 2960 cases of fraud in 125 countries between January 2016 and October 2017. The report contains many interesting observations about fraudulent activity, including the following:
- The median loss from occupational fraud in small businesses with less than 100 employees was $200,000
- Internal control weaknesses were responsible for nearly half of all frauds
- Most fraud victims recovered nothing
- The 2960 cases of fraud referred to in the report included 60 cases of fraud at religious, charitable or social services organizations where the median loss was $90,000. A loss of this magnitude can, of course be devastating for these types of organizations.
- Internal control weaknesses were responsible for half of all frauds
The ACFE report noted examples of controls that if in place, were found to substantially reduce the median size and duration of a fraud. Examples of such controls include the following:
- Code of conduct
- Proactive monitoring – consider for example monitoring of actuals against budget and seeking solid explanations for variances
- External review of controls over financial reporting
- Surprise audits
- Management review of financial statements
International Fraud Awareness Week is coming up from November 17-23. It’s an excellent reminder to ask yourself how confident you are that you have adequate controls in place to mitigate the risk of fraud in your organization. If you think you might be at risk, talk to us, we are here to help.