This week, we were proud to support the ACFE’s International Fraud Awareness Week — a global effort to minimize the impact of fraud by promoting anti-fraud awareness and education. As we wrap up our Fraud Awareness Week series, Fraud Stories and Lessons Learned, it is a pleasure to end the week with a message from Jon Groussman, President of Lowers & Associates (L&A). In this video, Jon discusses why fraud happens and how L&A works with organizations to detect, investigate, and prevent it.
Watch the video here:
In its 2020 Report to the Nations on Occupational Fraud, the Association of Certified Fraud Examiners (ACFE) conducted the 11th edition of its largest global study on occupational fraud. The report examines how fraud schemes including corruption, asset misappropriation, and financial statement fraud are committed and how they are detected. It also looks at the profile of both victim organizations and perpetrators.
Some notable findings from the ACFE Report include:
Organizations lose an estimated 5% of revenue each year to fraud.
21% of cases caused losses of $1 million or more.
Asset misappropriation is the most common category of fraud experienced by organizations.
The median duration of a fraud is 14 months.
Financial statement fraud has the greatest velocity (median loss per month) at $39,800 per month.
Most commonly, fraudsters conceal their crimes by creating or altering physical or digital documents or files.
Tips by employees, customers, anonymous sources, and others are the most common way fraud is initially detected.
70% of fraud occurred in for-profit organizations.
Small businesses (those with fewer than 100 employees) had the highest median loss of $150,000.
Billing schemes occurred at almost twice the rate in small businesses compared to larger organizations. Check and payment tampering was nearly four times more common at small companies.
Corruption and noncash schemes occurred more frequently in larger organizations.
Only approximately half of the victim organizations in the ACFE study undertook background checks on their employees.
The longer a perpetrator works for a company, the more damage that person’s fraud scheme causes.
Manager-level perpetrators are more likely to override existing controls.
85% of all fraudsters displayed at least one behavioral red flag while committing their crimes.
Most organizations (54%) in the ACFE study did not recover any of their losses.
Adding perspective from fellow Lowers Risk Group company, Lowers Forensics International, Henry Dicker has this to say about fighting fraud: “One thing is constant: Accounting fraud is always a surprise. Our clients say, ‘We never saw it happening.’ Solid internal controls, implemented and followed diligently, are the best deterrent to fraud. Additionally, continually maintaining and testing your internal controls, performing internal audits of high-risk areas, and monitoring non-financial measures is crucial. Forensic Accountants are a valuable resource to have on your side to help safeguard your data and investigate losses when fraud strikes.”
To discuss your fraud prevention program with an expert, we invite you to reach out to Lowers & Associates here.
Today is day 4 of our Fraud Awareness Week series, Fraud Stories and Lessons Learned. Jenn Wolfgang, Account Manager for Lowers & Associates, shares the story of a monthly subscription e-commerce startup who had come to Lowers & Associates looking to improve their risk profile. What the team immediately uncovered was an environment ripe with fraud and vulnerable to even more losses.
According to the Association of Certified Fraud Examiners (ACFE), losing data to fraud can be more costly than the loss of cash and other assets. To ensure data security, safeguard intellectual property and guard against cyber fraud, organizations — and the fraud examiners who help protect them — must stay informed of rapidly advancing technologies, emerging business trends, and the methods employed by increasingly sophisticated information thieves.
In this fraud story, Jenn explains how fraud was allowed to flourish, how L&A helped mitigate, and what organizations can do to reduce cyber fraud and inventory loss.
Listen to the story here:
For added insight into the issue of e-commerce fraud, we turned to our friends at Lowers Forensics International. Marc Johnson, President of Lowers Forensics, remarks, “As the world strained against the grip of a global pandemic, the very nature of ecommerce fraud changed. In a matter of months, fraud became more abundant, more automated, and more diversified in terms of techniques and targets. Forensic accounting is one of many important aspects in the fight against e-commerce and financial crime via the identification and tracking of suspected fraud cases. It is the process of interpreting, summarizing, and presenting complex financial issues in a concise, detailed, and factual manner for the purpose of uncovering fraud. The analysis, interpretation, summarization, and the presentation of difficult financial related issues are essential features of forensic accounting.”
Stay tuned tomorrow for our final Fraud Week episode where we’ll hear from Jon Groussman, President of Lowers & Associates, on what organizations can do to better protect themselves and how an outside consultant can help.
Today is day 3 of our Fraud Awareness Week series, Fraud Stories and Lessons Learned. Tom Dolan, Manager of Claims & Research for Lowers & Associates, shares his story of a $10M billing fraud scheme he and the L&A team helped to uncover. This was an occupational fraud scheme that had been perpetrated over the course of 15 years by a contractor and a trusted employee. The contractor provided janitorial products to the US headquarters. With the help of the company’s facilities manager, the contractor developed a relatively simple fraud scheme in which he would bill and over-bill for products that were never delivered.
According to the Association of Certified Fraud Examiners (ACFE), billing schemes are the most common form of asset misappropriation and also cause a high median loss of $100,000, making this type of fraud a particularly significant risk. A typical billing fraud scheme lasts 24 months before being discovered.
In this fraud story, Tom explains how this billing scheme was allowed to happen, why it took 15 years to uncover, and what organizations can do to prevent becoming victims themselves.
Listen to the story here:
Danielle Gardiner, Senior Vice President of Lowers Forensics International, offers further advice: “As forensic accountants we investigate patterns in business activity to uncover potential vulnerabilities, including overbilling, fraud, and internal control weaknesses. Success of this type of fraud scheme depends entirely upon weaknesses in an organization’s internal control structure. In addition to forensic analysis and interviews, forensic accounting firms work with business owners to recommend internal controls to establish as a deterrent for future incidents.”
In its 2020 Report to the Nations on Occupational Fraud, the ACFE points out the top three control weaknesses within organizations that experience fraud. They are lack of internal controls, lack of management review, and overriding of existing internal controls. In today’s fraud story, unfortunately, all three of these weaknesses were present.
Stay tuned tomorrow for another fraud story from the front lines of Lowers & Associates.
According to the Association of Certified Fraud Examiners (ACFE), a single case of occupational fraud costs the victim organization an average of more than $1.5 million, and Certified Fraud Examiners (CFEs) estimate that organizations lose 5% of their revenues each year to fraud. In the ACFE’s 2020 Report to the Nations, a study of 2,504 cases of occupational fraud investigated by CFEs in 125 countries, the typical fraud lasted 14 months before it was detected and caused a median loss of $8,300 a month.
In an effort to educate organizations on the reality of fraud and to increase awareness of the controls that can help reduce fraud, each year the ACFE sponsors Fraud Awareness Week. Today marks day one of our Fraud Week series, Fraud Stories and Lessons Learned, and we are pleased to introduce Milton de Oca, Director of Operations for Lowers & Associates International. Prior to joining L&A, Milton served 32 years as a police officer with the Miami police department, a gangs sergeant, and finally, as the commander of the intelligence and terrorism unit.
Milton tells the story of an attempted fraud he and the L&A team helped to uncover and resolve in South America related to the procurement of ballistic vests that were to be used for dignitary protection.
Listen to the story here:
This interesting case demonstrates that fraud can come in many forms and at any level. Often it takes a considerable amount of investigation to uncover the fraud and while, in this case, we were able to exonerate the client of the loss, the ACFE reports that most organizations (54%) do not ever recover the losses they suffer at the hand of occupational fraud.
Milton advises all organizations to enlist the help of an independent outside source in cases like these in order to conduct an unbiased investigation.
Stay tuned tomorrow for another fraud story from the front lines of Lowers & Associates.
Think it’s too good to be true? (You’re probably right.)
This week, we have been proud to recognize and support the Association of Certified Fraud Examiners’ 2020 Fraud Week initiative with our special Coffee Break Series. Fraud Week is an annual movement organized by the ACFE to champion the need to proactively fight fraud and help safeguard businesses and investments from the growing fraud problem. We have shared a number of stories and lessons through the eyes of Certified Fraud Examiners and other fraud experts on our team, examining issues such as fraud detection, whistleblower programs, situational awareness, and cyberfraud.
For our final episode, we interviewed Neil Watson, Director, Global Operations for Lowers & Associates. Neil has more than 30 years’ experience in the insurance industry which includes over 20 years working within the Fine Art, Jewellery and Specie (FAJS) sector. It is through this lens that Neil shares three stories of FAJS insurance-related fraud and key lessons that can be applied to any industry:
1. Nickel Wire: Worth How Much?
In this story, Neil encounters nickel wire that was reportedly worth $300/meter and the owner was seeking to insure 6 million meters worth. If nickel wire was worth that much, wouldn’t we all be invested in it? Neil shares how some quick research revealed the ludicrousness of this attempted fraud.
2. Rubies: Really?
Neil has some great stories to tell about ruby gemstones. The usual quarterly sale of all rubies sold around the world is in the neighborhood of $40-$50 million. The highest value single ruby ever sold was $30 million. Here, he shares what it’s like to receive a fantastic photo of a stone someone is wanting to insure that is reportedly worth $250 million. Really?
3. Platinum Concentrate: Unearthing the Truth.
Neil tells the story of the great effort a group of fraudsters went through to present a compelling story of $5 billion worth of platinum concentrate they wanted to insure. The Lowers team went so far as to visit the facility only to unearth the truth of the matter.
Grab a cup of coffee and spend 8 minutes with Neil to hear three stories that will make you believe when something feels too good to be true, it probably is.
We hope you enjoyed this week’s special Fraud Week Coffee Break Series. You can access the full roundup of episodes here. At Lowers Risk Group, we’re intent on helping organizations protect their people, brands, and profits from avoidable loss and harm. If you think we can be of assistance to you, request a meeting and let’s get to work.
