Lessons Learned From Ten Most Common Frauds

In the April 2002 issue of Journal of Accountancy, Joseph Wells, chairman of the Association of Certified Fraud Examiners (CFE), reviews the results of a survey by CFE and discusses the implications for CPAs.

Most Common Frauds

Based on a study of 971 fraud cases, CFE's study found the ten most common types of frauds, along with their respective frequencies and median costs in 2002, were as follows:

1. Billing schemes, 25.2%, $160,000
   
2. Skimming, 24.7%, $70,000
   
3. Check tampering, 16.7%, $140,000
   
4. Corruption schemes, 12.8%, $530,000
   
5. Expense reimbursements, 12.2%, $60,000
   
6. Payroll schemes, 9.8%, $140,000
   
7. Noncash misappropriations, 9.0%, $200,000
   
8. Cash larceny, 6.9%, $25,000
   
9. Fraudulent financial statements, 5.1%, $4,250, 000
   
10. Register disbursements, 1.7%, $18,000

Implications for CPAs

Through correlation analysis, the survey also found that (1) audits have a substantial impact on the size of the typical fraud, and (2) the risks of financial statement manipulation are greatest in smaller businesses that are trying to raise money from a private source. The resulting message for CPAs is that they should encourage bankers and other lenders to require more audits of their borrowers. Another key message can be drawn from the fact that the most common frauds are easier to prevent than to detect. Mr. Wells points out that most schemes can be prevented through basic accounting controls, audits and proper oversight. He urges CPAs to take responsibility for educating their clients about the potential problems and ways to prevent them.

Download the full study.

-Rosemary Schlank


Number of comments: 3

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Neschla McCall , 16 April 2002 @ 15:05 PM  Fraud Report I'm new to this site, so I may be a bit behind. I am in the process of preparing to take the CFE Exam so this is fresh in my mind. The CFE's Code of Ethics specifically prohibits a fraud examiner from expressing an opinion as to the presence of fraud. Basically, the examiner's report lists the facts that may support the finding of fraud (by a jury, for example) but stops short of expressing an opinion as to the presence or absence of it. Hope this helps.

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Mark Keleske , 10 April 2002 @ 23:30 PM  Fraud Report Here is a resource to consider. It is the website for the Assoc. of certified fraud examiners. http://www.cfenet.com/home.asp I cannot imagine (though I could be wrong) that anyone would render an opinion that there is no fraud, since the legal exposure would be very great if you were wrong. Many kinds of fraud may be undetectable, especially when collusion is involved.

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Lisa Matthews , 09 April 2002 @ 15:27 PM  Fraud report Can anyone tell me whether there is a "standard" report to report fraud, similar to an opinion on the FS?? If you are working on an assignment to certify that fraud has indeed occurred, how do you report it? Thanks!!