Fraud – Are You at Risk?

In November 2020, CBC News highlighted a common situation Canada-wide – individuals in positions of trust stealing or allegedly stealing money from  youth sports organizations.   An investigation by CBC Sports revealed that in the last decade nearly $8 million has gone missing from dozens of sports leagues and associations across Canada. The theft is usually committed by one person within the organization who is responsible for its finances.  Theft of this nature is not isolated to sports organizations.  We have seen occurrences of this activity in multiple organizations, often made too easy by lax controls.

The type of fraud identified by the CBC investigation mirrors observations from the Association of Certified Fraud Examiners (ACFE).  The ACFE is the world’s largest anti-fraud organization. It publishes the results of an annual a global study on occupational fraud and abuse. According to the ACFE, occupational fraud is likely the largest and most prevalent threat.  Occupational fraud is fraud committed against an organization by its own officers, directors, or employees – people in a perceived position of trust with the organization.  

ACFE’s most recent report was published in 2020.  It is based on 2504 cases of fraud in 125 countries between January 2018 and September 2019.

The report contains many interesting observations about fraudulent activity, including:

• The median loss from occupational fraud in small businesses with under 100 employees was US$150,000
• Internal control weaknesses were responsible for half of all frauds
• Most fraud victims recovered nothing
• The 2504 cases of fraud referred to in the report included 43 cases of fraud at religious, charitable or social services organizations where the median loss was US$76,000. A loss of this magnitude can be devastating for these types of organizations

The ACFE report noted examples of controls that if in place, were found to substantially reduce the median size and duration of a fraud. 

Examples of such controls include:

• Code of conduct
• Proactive monitoring – consider for example monitoring of actuals against budget and seeking solid explanations for variances
• External review of controls over financial reporting
• Surprise audits
• Management review of financial statements

March is Fraud Prevention Month, an annual campaign that seeks to help you recognize, reject and report fraud.  It is an excellent reminder to ask yourself how confident you are that you have adequate controls in place to mitigate the risk of fraud in your organization.   

Do you know if the pandemic has resulted in changes to your team or operations that may impact your organization’s internal controls?   If you are not sure, you might be at risk.  Talk to us, we are here to help.