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Forensic Accounting and Fraud Investigation for Non-Experts, 3rd Edition by Michael Sheetz, Howard Silverstone, Frank Rudewicz, Stephen Pedneault

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CHAPTER 7

Business as a Victim

Introduction

Business can be a victim of both internal and external fraud. Internal fraud is perpetrated by employees at any level from bookkeepers writing checks to themselves, to the complex collusion to steal inventory by manipulating computer data and shipping the stolen goods to off-site locations. External fraud is deception committed by an outsider against the company. Insurance companies are common victims of this type of fraud through false applications and false claims. Banks also are frequently victimized, as are government agencies.

The key factor is to recognize the warning signs of fraud; to understand how fraud is committed is to understand how to minimize its possibility. Unfortunately, the statistics still show that many businesses do not understand the red flags of fraud.

You only pay a nuclear physicist two million dollars for one thing these days and it wasn't to build a better mousetrap.1

As indicated in the 2010 report of the Association of Certified Fraud Examiners (ACFE) mentioned in Chapter 2, asset misappropriation accounts for an overwhelming 86.3 percent of all occupational fraud. Corruption schemes are a distant second at 32.8 percent, and fraudulent statements represent 4.8 percent.2

Employee Thefts

Cash

Cash is the favorite target of fraudsters and accounts for approximately 85 percent of all asset misappropriations, according to the 2010 ACFE study. Much is taken by outright cash larceny and skimming, but the majority ...

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