Fraud Post-Pandemic Rise: Why it Matters to You
According to a recent survey from the Association of Certified Fraud Examiners (ACFE) and Grant Thornton, LLP, there has been a 51% increase in uncovered fraud since the onset of the pandemic and 71% of respondents anticipate fraud to increase over the next 12 months.
Organizations typically face three categories of fraud which include corruption, misappropriation of assets, and financial statement fraud. The most common is misappropriation of assets which represents 86% of all fraud cases, according to the 2020 Report to the Nations conducted by the ACFE. Misappropriation of assets is classified as the theft of organizational cash and assets. It can be as simple as taking cash from the register or as complex as shell company billing schemes. Also noted in the 2020 Report to the Nations, the most common misappropriation of assets schemes are billing (20%), noncash (18%), and expense reimbursement (14%). There are different techniques used by fraudsters within each of these schemes. Some fraudsters submit invoices from false companies for goods and services never received in the hopes they will be paid, while some employees will turn in duplicate expense receipts for reimbursement and other will create false sales of inventory items to themselves or an accomplice.
So why does this matter to you and your organization? The 2020 Report to the Nations estimated 5% of all revenue globally is lost to fraud. Still think this doesn’t matter to your organization? Fraud happens in western South Dakota too. In my experience with Ketel Thorstenson, LLP, I have worked on several fraud cases and have heard about twice as many. Pick up a local newspaper, and I bet you will see an article about fraud.
Fortunately, there are ways to protect your organization from fraud and it is accomplished through effective internal controls. Controls surrounding cash receipts, cash disbursements, and assets susceptible to theft (inventory) are a great way to protect your organization from fraud. Reviewing the bank statement and credit card statement for propriety of deposits and withdrawals is an excellent way to detect fraudulent activity. Separating duties is a great way to prevent fraud as the employee who oversees the organization check stock is less likely to commit fraud if a different employee is the authorized check signor. Lastly, we have all heard it, but it stands true, the employee whose lifestyle is extravagant for their income, may be committing fraud.
As the saying goes, trust your business associates but verify what they provide and tell you. Reach out to the KTLLP team with any questions.