2016 Fraud Trends for Manufacturing, Distribution and Retail Businesses

2016 Fraud Trends for Manufacturing, Distribution and Retail Businesses

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By Matthew O. McDonald, CPA/CFF, CFE, Partner | Manufacturing, Distribution and Retail Team

The Association of Certified Fraud Examiners recently published its biennial “Report to the Nations on Occupational Fraud and Abuse”.  One of the stated goals of the report is to provide awareness of fraud risk an organization may have to deal with.  The 2016 global fraud study highlights the current trends for those with an interest in reducing the threat of occupational fraud.

Highlights from those participating in 2016 report include the following:

  • Estimated loses for a typical organization was 5% of revenues in a given year
  • An average loss per case was $2.7 million, with total loses on all cases exceeding $6.3 billion (with a median loss of $150,000, and 23.2% of losses exceeding $1 million)
  • Asset misappropriation occurred in over 83% of the cases
  • Financial statement fraud occurred in less than 10% of the cases
  • Corruption occurred in approximately 35% of the cases
  • The medium time duration for a fraud was 18 months
  • Perpetrators in over 94% of the cases took steps to conceal the fraud, with the most common methods were creating and altering physical documents
  • Tips was the most common detection method (approximately 39% of the cases)
  • The manufacturing industry was one of the most representative sectors of cases reported (along with banking and financial services and government and public administration)
  • The perpetrator’s level of authority was strongly correlated with the size of the fraud
  • The more individuals involved, the higher the losses tended to be.
    • Single perpetrator – $85,000 loss
    • Two perpetrators – $150,000 loss
    • Three perpetrators – $220,000 loss
    • Four perpetrators – $294,000 loss
    • Five or greater – $633,000 loss
  • 7% of victim organizations decided not to refer their fraud cases to law enforcement

For manufacturing, transportation and warehousing, and retail, number of cases and median losses are as follows:

Industry Cases % of Cases Median Loss
Wholesale Trade 20 0.9% $500,000
Manufacturing 192 8.8% $194,000
Transportation and Warehousing 68 3.1% $143,000
Retail 104 4.8% $ 85,000

The frequency of the schemes used in perpetuating the frauds by industry are as follows:

Scheme Manufacturing Retail Transportation and Warehousing
Billing 32.8% 15.4% 22.1%
Cash Larceny 5.2% 12.5% 4.4%
Cash on Hand 8.3% 11.5% 5.9%
Check Tampering 13.5% 9.6% 10.3%
Corruption 48.4% 32.7% 51.5%
Expense Reimbursement 22.9% 8.7% 8.8%
Financial Statement Fraud 10.9% 5.8% 5.9%
Non-Cash 30.2% 32.7% 29.4%
Payroll 11.5% 3.8% 7.4%
Register Disbursements 5.7% 8.7% 2.9%
Skimming 8.3% 17.3% 11.8%

(Note:  Yes, these do not add to 100%.  More than one scheme may have been identified in particular cases.)

Trends in the implementation of anti-fraud controls worldwide include establishing hotlines, conducting fraud training for employees or managers/executives, establishing of anti-fraud policies and codes of conduct, strengthening management review, and performing surprise audits.

The complete 2016 Report covers more than 90 pages of information and the above is just a snapshot of facts gleaned from its detail.  You can get more information and view the entire report at www.acfe.com/rttn2016.  Should you have specific questions pertaining to your organization and anti-fraud measures, please contact your Keiter service provider or 804.747.0000 | Contact us.

The information contained within this article is provided for informational purposes only and is current as of the date published. Online readers are advised not to act upon this information without seeking the service of a professional accountant, as this article is not a substitute for obtaining accounting, tax, or financial advice from a professional accountant.

About the Author

Matt has over 20 years in public accounting providing audit, tax, consulting services, and financial forensic investigations for a variety of businesses, including multi-state privately held businesses and companies with single location operations. Areas of specialization include the multi-family housing industry, real estate, construction, not-for-profit organizations, retail, and manufacturing clients. Read more of Matt’s accounting insights on our blog.

More Insights from Matthew O. McDonald, CPA/CFF, CFE


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