Occupational Fraud and Abuse: Impact on Manufacturing, Distribution, and Retail Businesses

By Doug K. Nickerson, CPA, CCA, Partner

Occupational Fraud and Abuse: Impact on Manufacturing, Distribution, and Retail Businesses

The Association of Certified Fraud Examiners (ACFE) recently published its 10th edition of their biennial “Report to the Nations – Global Study on Occupational Fraud and Abuse.

The goal of the Report to the Nations is to compile detailed information about occupational fraud cases in five critical areas: the methods used to commit the fraud, the means by which the fraud was detected, the characteristics of the organizations effected, the characteristics of the people committing the fraud, and the results of the cases.  The Report to the Nations is considered the most comprehensive and widely quoted source of occupational fraud data in the world; based on information from real cases as reported by Certified Fraud Examiners (CFEs) from around the globe, and continues to be a resource for those interested in how fraud is committed, how fraud is detected, who commits a fraud, and how organizations can protect themselves from fraudulent activities.

Highlights and key findings from the Report to the Nations:

  • Information obtained from 2,690 real cases of occupational fraud, from 125 countries, in 23 industry categories
  • Known fraud cases resulted in $7B+ in total losses, with a median loss per case of $130,000, and 22% of the cases resulted in losses of $1M+
  • Median duration of fraud scheme was 16 months – facts prove that the longer a fraud goes undetected the large the scheme will grow – 8% of the fraud cases lasted more than 60 months and resulted in median losses of $715k
  • Primary categories of occupational fraud and median losses:
    • Asset misappropriation (89%) – $114k
    • Corruption (38%) – $250k
    • Financial statement fraud (10%) – $800k
    • These amounts are only slightly changed from the 2016 Report to the Nations
  • Common detection methods:
    • Tips – 40%, with 53% reported by employees and 21% reported by customers
      • The presence of a hotline or other reporting mechanism affects how the fraud is detected and the outcome of the case.  Fraud losses were 50% small at organizations with hotlines than those without.
    • Internal audit – 15%
    • Management review – 13%
  • Victim organizations:
    • Private company – 42%
    • Public company – 29%
    • Government/NFP/Other – 29%
    • Manufacturing companies were victims of 212 cases with a median loss of $240k.  Manufacturing companies were in the top 5 of organizations affected by fraud.  This is consistent with the results of the 2016 Report to the Nations
  • Who is perpetrating the fraud and median losses:
    • Employee (44%) – $50k
    • Manager (34%) – $150k
    • Owner / executive (19%) – $850k
    • Other (3%) – $189k
  • How do organization punish fraud perpetrators:
    • Termination – 65%
    • Settlement agreement – 12%
    • Permitted or required to resign/no longer with organization – 21%

Source: Association of Cerified Fraud Examiners

The ACFE is the world’s largest anti-fraud organization and provider or anti-fraud training and education.

Our Valuation and Forensic Services Team includes professionals who specialize in providing financial investigation services making our practice one of the largest in Virginia. Members of our team are certified by the American Institute of Certified Public Accountants as Certified Public Accountants and Certified in Financial Forensics, and by the Association of Certified Fraud Examiners as Certified Fraud Examiners.

Should you have any specific questions pertaining to your organization related to fraud assessment, fraud detection, and prevention measures, please contact your Keiter opportunity advisor.

Additional Resources:

New Revenue Recognition Standard: Manufacturing, Distribution, and Retail Industry Changes

Revenue Recognition: Accounting for Franchisor Revenues

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About the Author

Doug K. Nickerson

Doug K. Nickerson, CPA, CCA, Partner

Doug shares his real estate and construction accounting insights with his clients to help them achieve their financial goals. Doug is the leader of Keiter’s Construction Industry team and is a member of Keiter’s Real Estate, Healthcare & Medical Services, and Manufacturing Industry teams. Doug has over 18 years of experience in corporate accounting and public accounting providing audit and consulting services.

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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.


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