Fraud in Workplace is More Widespread Than Most Believe - L. Wallace Behrenz

Fraud is a term frequently used (and abused) by many who talk or write about it. What exactly does it mean? Fraud can be defined as the effort to relieve a victim of assets for personal enrichment of the perpetrator through the use of intentional deceit, concealment, false representation, forgery and theft. It is a crime in which one hand pats the victim on the back while the other hand reaches into the back pocket emptying the wallet. The victim can be an individual, business, governmental agency, charitable organization, or any entity with assets worthy of a criminal mind's attention.

From experience, business-related fraud fits into two primary categories:
False financial statement presentation and representation, and
Occupational fraud whereby the perpetrator uses his or her occupation for personal enrichment.

The first category is most often perpetrated by a business owner or key executive to dupe a bank, financial institution, or investor into loaning or investing liquid assets into a business entity. This type of fraud consists of manipulating financial statements to present overstated assets and or revenues or understated liabilities and or costs. Just because a certified public accountant's letterhead appears on a financial statement does not mean that it is fraud-free. Even the audited financial statements can not be relied upon to expose fraud. The underlying documents from which the financial statements are prepared are those of the fraudster.

The second type of fraud is more widespread and is likely to affect many of the readers of this article. This type of fraud most often manifests itself through intentional deceit, forgery and theft. It is most often executed by "trusted" employees who have access to accounting information and records, including cash receipts and cash disbursement documents. By virtue of the trust this person enjoys, the usual controls and segregation of duties are suspended or ignored. In many cases, small businesses do not have enough employees to segregate duties sufficiently. Fraud schemes by employees usually are long-term, spanning months or even years and can be difficult to detect by an untrained person. Once found, fraud cases are difficult to prosecute and often result in relatively low sentences for the criminals.

As a former FBI agent, I was constantly amazed how the typical bank robber, realizing only a few hundred dollars for his efforts, would be sentenced to many years in prison in comparison with the white collar criminal who would net hundreds of thousands to millions of dollars and receive only minor stints of a few months in a minimum security facility.

In a report to the nation on occupational fraud and abuse that included reporting through 2006, the Association of Certified Fraud Examiners cited studies that revealed 87.7 percent of asset misappropriations involved the theft of cash. Although this is to be expected, the safeguarding of other readily disposable assets should be considered, for example the theft of inventory items that can be resold and lead to sizable losses for a small business.

It's safe to assume that all businesses have some form of fraud within their confines. It can be as small as the theft of office supplies to larger thefts of inventory and assets, including cash. In the report cited above, it was estimated that a typical organization loses 5 percent of its annual revenues to fraud.

This may seem minuscule; however, consider that the forecasted U.S. gross domestic product as of June is $14.334 trillion. This equates to roughly $717 billion lost to fraud.

As Published in Las Vegas Business Press, December 23, 2008 Republished in Northern Nevada Business Weekly, June 22, 2009 under the title “All about fraud: Every business, small and large, probably suffers some type of fraud”