Occupational fraud methods stand the test of time.

Amanda Bernard, CPA, CFE, CMA, Principal

abernard@maillie.com

Occupational fraud methods stand the test of time.  According to the ACFE’s 2018 Report to the Nations, over the last two decades, the main methods by which fraudsters commit their crimes has not changed.  This is true despite significant changes throughout other areas of business, such as improvements in technology, globalization, and increased scrutiny from regulators.

By far the most common method of committing fraud continues to be asset misappropriation, which transpired in 89% of the cases in the 2018 study and caused a median loss of $114,000.  Asset misappropriation includes theft or misuse of cash, inventory or other company assets.  Schemes in this category can consist of a variety of methods from simple cash or inventory theft to sophisticated fraudulent disbursement or receipt skimming arrangements.


Corruption occurred in 38% of fraud cases studied in the report, with a median loss of $250,000.  Corruption remains one of the most significant fraud risks for global organizations and one of the hardest fraud methods to detect.  Industries with the biggest exposure to corruption include energy, manufacturing and the government/public sector.  Most cases studied in the corruption category were committed by men (82%) in a position of authority such as manager or owner/executive (70%).  The top red flags demonstrated by perpetrators in more than 20% of corruption cases are living beyond one’s means, an unusually close relationship with a vendor or customer, financial difficulties, and a “wheeler dealer” attitude.


The least common, but by far the most costly, of fraud schemes involves financial statement manipulation.  This fraud method was used on its own in only 10% of cases yet has caused an enormous median loss of $800,000.  Manipulation of an entity’s financial statements is often used to cover up another type of fraud scheme or in addition to other theft methods.  Not surprisingly, nearly one-third of the cases studied contained more than one form of occupational fraud.


The good news is consistency in fraud methods used over the years has allowed fraud examiners to analyze, categorize, and learn how to prevent and detect these schemes.  If you are interested in receiving a fraud prevention checklist or speaking with a certified fraud examiner, contact me at abernard@maillie.com.