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St. Louis Occupational Fraud Cases Mirror Global Study Findings

05.04.2016

As Seen in BizTalk in the St. Louis Business JournalThe Association of Certified Fraud Examiners (ACFE) recently released their 2016 Report to the Nations on Occupational Fraud and Abuse. Based on the survey, the typical organization could lose 5 percent of revenues in any given year to fraud.

There are three primary categories of fraud:

  • Asset misappropriation, which occurs when an employee steals or misuses an organization’s resources.
  • Corruption, which occurs when an employee misuses their influence in a business transaction that violates their duty to the employer in order to gain benefit.
  • Financial statement fraud, which occurs when an employee intentionally causes a misstatement or omission of information in an organization’s financial reports.

Asset misappropriation was the most common form of occupational fraud identified in the ACFE report, constituting more than 83 percent of the cases with a median loss of $125,000. Examples of asset misappropriation include theft of cash on hand and receipts, fraudulent disbursements, and misuse of inventory and assets.

During the first quarter of 2016, several examples of occupational fraud related to asset misappropriation were reported in the local media. These local cases illustrate the general findings of the ACFE study.

1) Long-Time Employee Defrauds Employer of More than $600,000 Using Payroll Scheme

The perpetrator worked for a company that provides private probation services and electronic monitoring. After 13 years, she started submitting fraudulent overtime pay for herself and a relative. Later, she did the same thing for a second relative that joined the company.

The ACFE reports that the more people involved in an occupational fraud scheme, the higher the losses. In this case, the losses were triple the ACFE study median loss of $220,000 for cases involving three conspirators.

2) Technology Company Employee Submits Expense Reports for Nearly $500K in Unauthorized Expenses

An employee submitted expense reports to pay for unauthorized, personal expenses for over a year before being caught.

The ACFE reported in its study that there’s a correlation between the perpetrator’s level of authority and the size of the fraud. According to reports, the court is weighing a longer sentence for this perpetrator than is called for based on federal guidelines because he abused a position of trust and used special skills to commit the fraud.

The median loss associated with frauds committed by owners or executives in the ACFE study was $703,000, compared to $173,000 for managers and $65,000 for employees. In this example, the loss was 7 times the median loss for cases involving employees.

3) Credit Union Employee Conspires with Outsider to Steal Thousands from Account Holders

An employee made changes to online passwords or set up customers for online banking without their authorization to provide a third party with unauthorized access to client bank accounts. In two days, they were able to steal $29,600.

This case reflects the ACFE study findings in a couple of ways:

  • Industry: the banking and financial services industry was one of the most affected sectors in the cases examined for the fraud study.
  • Customer Service: the employee involved in the scheme worked in the credit union call center. The ACFE found that most occupational frauds were committed by employees that work in 1 of 7 key departments including Customer service.

4) Fire Protection District Bookkeeper Admits to Nearly Decade Long $450K Embezzlement

Over a nine-year period, a bookkeeper embezzled $450,000 from a local fire district. She wrote checks on the district account to pay for personal expenses. She also misappropriated pre-signed blank checks that were supposed to be used for authorized bills.

According to the ACFE, the longer the fraud lasts, the greater the financial damage to the organization. In the ACFE study, the median duration of the frauds reviewed was 18 months. This one could have been worse. In the study, frauds that lasted more than 5 years cost organizations a median loss of $850,000.

This scheme also involved an employee in the accounting department. The ACFE says that 16 percent of occupational fraud originates in the accounting department — that’s more than any other business unit.

The perpetrator also used a check tampering scheme to commit the fraud — a form of asset misappropriation that the ACFE says poses the greatest risk for organizations due to frequency and median loss.

Ronald P. Steinkamp, CPA, CIA, CFE,CRMA, CGMAIf you’d like to read more of the findings, download a copy of the ACFE report.

To learn more about your risk for occupational fraud, contact Ron Steinkamp, Partner, Advisory Services, at 314.983.1238 or rsteinkamp@bswllc.com.

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