The escalation of embezzlement crimes is alarming. Many companies cannot afford to sit back and hope their employees and management are ethical. But fraud does not discriminate and firms need to stop believing their employees will not perpetrate internal frauds.
According to the latest Annual Global Fraud Survey commissioned by Kroll Inc., 81 percent of firms were victims of frauds perpetrated by insiders. The costs are too high for firms of any size to ignore the threat and not invest in more means of defending the business from the inside.
Historically, companies have had to rely on forensic accountants to provide protection against internal fraud. Now, DFND Analytics has made it possible for organizations of any size to have their financial records regularly monitored to protect them against fraud, embezzlement, and costly errors.
Who commits internal fraud crimes?
Embezzlement is essentially stealing, with the big difference being that insiders conduct the fraud. The perpetrator could be a contractor or other business partner with authorized access to the company’s computer system. However, in many cases, current or former employees — at all levels — execute the crime.
Data from the Association of Certified Fraud Examiners (ACFE) 2014 Report to the Nations on Occupational Fraud and Abuse illustrates that all levels of employees may commit crimes against their employer, but senior executives do the most financial damage:
- Senior or middle managers were responsible in 36 percent of nearly 1,500 occupational fraud cases examined by Certified Fraud Examiners. Junior employees were responsible in 45 percent of investigations. Only 23 percent of the reported frauds resulted from actions of an agent or non-employee with access.
- The size of the fraud losses corresponds to level of authority. For example, owners or top executives were found to be responsible in 19 percent of the investigations, but their median loss to their company was $500,000. Managers committed 36 percent of the embezzlements with a median loss of $130,000. Lower-level employees were involved in 42 percent of frauds, but the median losses were only $75,000.
- Losses also grow higher with the age of the embezzler. While half of the perpetrators were between 31 and 45, median losses grew higher by age range. This probably correlates to the seniority level as well.
- Background checks are not helpful in weeding out potential embezzlers. The vast majority are first-time offenders. In fact, studies show that they typically work for the employers for years before beginning to embezzle money or other resources.
Years in the making
Many believe that economic factors, such the recession, housing bubble, rates of unemployment, or other economic indicators increase the likelihood of white collar theft. The economy may add an incentive, but most embezzlers’ schemes go on for years, in good times and bad. For example, University Business reported several examples of embezzlement unearthed on college campuses, with nearly 40 percent of the schemes taking place for periods of at least five years.
The median duration – the amount of time from when the fraud commenced until it was detected – of the fraud cases in the ACFE study was 18 months. And many sources note that the longer the scheme lasts, the greater the financial damage.
It is relatively rare for companies to uncover fraud in their midst through internal investigation. Most fraud is brought to light by whistleblowers, confessions or by law enforcement. In fact, the Kroll report indicated that whistleblowers exposed 41 percent of the malfeasance that survey respondents discovered. Fellow employees accounted for nearly half of all frauds uncovered. In almost all cases, however, it can take a long time for management to become aware of the situation and, in the meantime, the losses can mount quickly.
Some companies rely on surprise audits, their accounting firm or a dedicated fraud or ethics department to be on the lookout for questionable transactions. But being proactive about searching for problems is more effective and can stop frauds early on, before the losses mount.
Forensic software with standard and proprietary tools is used by DFND Analytics to look for anomalies. Using tailored algorithms, they help companies analyze their accounting records and look for overpayments, unusual behavior, and other indicators of potential fraudulent behavior. They also will help establish best practices to mitigate any unusual findings. This approach to helping companies address the embezzlement menace is their expertise.
DFND’s surveillance program allows a detailed analysis to be conducted 6 times within a year, at intervals chosen by the client. A financial professional on the DFND staff will review the test results and highlight the most pertinent issues unearthed. A summary report is provided with the ability to drill down to individual transactions to check out potential anomalies.
In spite of how effective proactive monitoring is, only one-third of firms use that type of control, largely because they think they cannot afford it. DFND Analytics equips small businesses, non-profits and government agencies with the ability to detect embezzlement in a timely manner. With DFND Analytics‘ help, organizations of all sizes can afford high quality fraud protection.
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