Businesses Face Growing Accounting Fraud

Posting by Joel Susco, CPA

As the business landscape continues to evolve and change, your company is facing increasingly complex and varied fraud threats. Recent research from Pricewaterhouse Coopers (PDF) bears this out, showing a significant increase in accounting fraud in U.S organizations, as well as some interesting changes regarding types of fraud and the perpetrators.

In order to adapt and protect your company, it is essential to understand how occupational fraud is evolving and changing. Here are some of the highlights from the study:

Accounting Fraud is on the Rise

Almost half (45%) of US organizations have suffered the consequences of fraud within the past two years, as compared to a global average of 37%. And, not only are more companies experiencing fraud, those that do are seeing an increase in the number of fraudulent actions.

Interestingly enough, while asset misappropriation is the most common type of fraud facing US companies, it has fallen significantly since 2011, from 93% of fraud cases to 69%. Obviously this does not diminish the need to protect your organization from these schemes, but it does show a changing occupational fraud landscape.

The survey also looked at procurement fraud, defined as “illegal conduct by which the offender gains an advantage, avoids an obligation, or causes damage to his organization.” Almost 30% of respondents reported incidences of procurement fraud, primarily around vendor selection and vendor contracting. It was the third most reported type of fraud in the survey.

Changes in Who is Committing Fraud

The report highlights some interesting changes regarding who commits fraud. The number of crimes committed by external parties is growing and at 45% of all cases, is now almost even with the number of crimes committed by internal parties, which is 50%. Additionally, the survey found that fewer junior employees are committing fraud; occupational fraud is now mainly the domain of middle management.

Cybercrime Continues to Grow

An interesting (but unsurprising) trend is the growing concern around cybersecurity. Almost half of US organizations that experienced fraud in the past two years suffered from cybercrime, and almost half of respondents felt that a cyberattack is likely within the next two years. These numbers will continue to increase as companies grow their international operations.

Protecting Your Company from Accounting Fraud

As the report notes, the increase in reporting may be due to improved internal controls and an increase in risk assessment. These improvements may be detecting more fraudulent acts. The reported increases in occupational crime may also be due to a more relaxed approach to fraud prevention. While more companies reported performing risk assessments, there are also more respondents that reported not performing any assessments. Additionally, the frequency with which these assessments are performed has decreased, leaving many companies more vulnerable to fraud.

Unfortunately, fraud will always be a risk for your business or organization. Designing, implementing, and testing internal controls is essential to help protect your company from evolving threats, both internal and external. To help you protect your business, we will be offering additional resources and insights regarding these findings on our forensic accounting blog, specifically exploring the findings around procurement fraud.

I encourage you not to become complacent in this area, especially in light of this research, and continue to work with your accountant to develop ways to ensure your company is safe from the ever-growing list of fraud schemes.

 

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