Want to keep learning?

This content is taken from the Kogod School of Business at American University's online course, Business Analytics: The Data Explosion. Join the course to learn more.

Skip to 0 minutes and 1 second So who are the victims of fraud? We’ll look at some more information from the Association of Certified Fraud Examiners’ Report to the Nations in this section. As you can see, privately held and publicly owned companies combined represent two-thirds of the cases reported. These organizations also suffered the greatest median losses, 180,000 and 178,000 respectively. So what the report also shows is that small organizations, those with less than 100 employees, are actually the ones that are most commonly victimized by fraud. So why do you think that is? First reason is lack of internal controls. These organizations commonly have very small staffs that lack the basic accounting controls needed.

Skip to 0 minutes and 43 seconds They will have possibly a single employee that will write the checks, that will sign the checks, that will reconcile the bank statement, and keep the company’s books. No organization should really have one person doing all those things. There’s also a level of trust that exists between people in these organizations. They know each other well. They’ve probably worked together for a long time. And they, therefore, can be a little less alert to dishonesty. When I started my career as a fraud examiner, I was called in to do a case at a dentist office. We got a call from these dentists that were – thought they were doing pretty well. They had customers all the time, or patients all the time.

Skip to 1 minute and 20 seconds And they weren’t, when it came down to their bottom line – they didn’t have any money. And they were confused. They weren’t numbers people so they needed to have us come in to take a look at their books. And the way that they worked the payment process for their patients was that their patients would come in, pay cash for their service to the receptionist. The receptionist would log their payment and then put it in the dentist office company’s books, and then go ahead and deposit it in the bank. And when we went in, guess who was the one who was perpetrating the fraud – that receptionist that was there in the front, who had been there for 20 plus years.

Skip to 1 minute and 59 seconds But she had all that power. She could take the cash, She got to reconcile the books and she got to deposit the money into the bank. She had a lot of control. And the dentist she knew trusted her, and she ended up ripping off the dentist for about $500,000.

Skip to 2 minutes and 20 seconds So how should companies go about finding fraud? In the Association of Certified Fraud Examiners’ report, a vast majority of victim organizations underwent external audits of their financial statements by independent audit firms. And despite being the most common anti-fraud control out there, audits are not actually designed to find fraud. And in the report, were responsible for less than 5% of the cases. There are other methods that companies can try to be successful at finding fraud. Tips are consistently and overwhelmingly the most common method by which frauds are found. So companies just have to create a mechanism by which their employees can report that fraud exists within the organization.

Skip to 2 minutes and 59 seconds It has to be anonymous, but something like a hotline or website is a great way to fight fraud. In addition to tips, proactive data analytics, such as Benford’s Law, is increasingly among the most common way to find fraud, which is why it’s really important that companies invest in this area.

What type of companies are most likely to fall victim to fraud?

Here we discuss which companies are most likely to be affected by fraud, and why. Professor Evans shares an illustrative example from her experience as a Certified Fraud Examiner.

We’ll also look at some tools and techniques that organizations can use to protect themselves from occupational fraud.

Share this video:

This video is from the free online course:

Business Analytics: The Data Explosion

Kogod School of Business at American University

Get a taste of this course

Find out what this course is like by previewing some of the course steps before you join: