Yet more evidence of the prevalence of financial fraud against organizations has emerged from a recent poll by Kyriba. The poll found that almost 80% of organizations had been victims of fraud.  The very high proportion of victims is startling in itself, but it is consistent with information we have presented in previous posts that organizational fraud is a global problem, costing 5% of top line revenue annually.

Almost 30% of the respondents to the Kyriba poll reported suffering financial losses, but we think this is a conservative number in this context. Organizational fraud is a hidden crime that sometimes is difficult to detect, even long after the fact.  When organizations do detect fraud, they may have incentives to minimize publicity about the crime, so underreporting is probable.

The poll includes some indications that the fraud was even more costly than reported.  5.6% of respondents reported that they had been targets of fraud but did not know if they had suffered losses, while almost 14% did not even know if they had been targets or not.  In fact, a little less than 8% reported that they knew they had not been victims, and it’s a good bet that a few of these simply hadn’t found out yet. … Continue reading

The phrase “Due diligence” sounds complicated but in reality, it is simply the process of doing your homework before you make a major commitment, either on a business or personal level.  Due diligence can be as simple as just asking the proper questions and making sure that a situation is “not too good to be true.”  This idea of checking into the facts behind a transaction to ensure it is fairly valued is the source of the old adage, “let the buyer beware.”[i]

Most of us practice due diligence even though we may not think of it that way.  For example, most people these days will do some research on the internet before making a major purchase, like buying a car.  We scan websites to get an idea of a fair price, the dealer cost, and any low interest financing deals so we can be prepared to counter the ”rock bottom price” offered by the car salesman.   In this process, we are doing our “due diligence” to get the best deal possible.

Due Diligence as a Defense

There are important legal uses of the term “due diligence.”  It began as a term describing a legal defense in the Securities Act of 1933.  Its purpose in that Act was to give broker-dealers a defense against an accusation that they had not disclosed information in a securities transaction.  If they had performed “due diligence” in researching the company, they could not be held liable for information they did not discover.[ii] … Continue reading