Consulting Services Classifying Fraud
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Organizations can experience fraud from external or internal sources, and regardless of the perpetrator, it often has a significant impact. If your organization does not have a fraud prevention budget, you may want to consider allocating funds to address fraud risks. As the table below shows, losses due to fraud can be significant, and losses will likely continue to increase if the fraud goes on undetected.

Fraud Type

Median Loss *

Corruption

$250,000

Asset Misappropriation

$114,000

Financial Statement Fraud

$800,000

*According to the 2018 ACFE Report to the Nations

The Association of Certified Fraud Examiners (ACFE) classifies internal fraud, also known as occupational fraud, into three major categories:

  1. Corruption: A scheme in which an employee misuses their influence in a business transaction in a way that violates their duty to the employer in order to gain a direct or indirect benefit.
  2. Asset Misappropriation: A scheme in which an employee steals or misuses the employing organization’s resources.
  3. Financial Statement Fraud: A scheme in which an employee intentionally causes a misstatement or omission of material information in the organization’s financial reports.

These three categories are broken out into specific schemes in the Occupational Fraud and Abuse Classification System, also known as the Fraud Tree. Having an understanding of these schemes can assist your organization when performing a fraud risk assessment to identify the ways in which fraud may occur at your organization. Also, keep in mind that many occupational frauds can fall into more than one category so it’s important that the people involved in assessing fraud risks are knowledgeable in the area.

Do you need help assessing fraud prevention in your organization? P&N has a depth of resources to help prevent, investigate and analyze fraud perpetration. Contact us today to find out how we can assist.

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