The CFO'S Perspective

According to the 2024 Report to the Nations by the ACFE (Association of Certified Fraud Examiners), organizations lose 5% of their revenue to fraud annually. That equates to a more than $5 trillion loss to fraud globally every year. And while we tend to hope that this kind of thing is happening somewhere else instead of in our backyard, the bulk of this fraud isn’t occurring overseas. In fact, the US and Canada are responsible for 38% of all reported fraud cases worldwide, which gives them the unfortunate distinction of leading the world in fraud.

We’ve known for years now that business fraud is on the rise dramatically across most categories. According to the ACFE, asset misappropriation schemes are the most common but least costly, while financial statement fraud is the least common but most costly. Falling somewhere in the middle of both spectrums are other forms of business fraud like billing schemes, check and payment tampering, and theft of non-cash assets. But there are also far more sophisticated fraud schemes emerging these days as well. A Cybersecurity Dive article from last year revealed a new startling trend – the uptick in financial scams using deepfake technology. While this may sound more like Sci-Fi movie than a business news headline, consider the fact that a recent report by Deloitte speculated that fraud losses may hit $40 billion by 2027 due to generative AI magnifying the risk of banking fraud.

At this point, it isn’t a question of whether your organization will become a target of fraud anymore, but when. Of course, that begs the question: How are you protecting your organization from fraud?

Here’s the scenario: You’ve discovered a problem with your books. It has rippled through into your key financial reports and possibly also affected corresponding tax filings for that period. Your mind starts spinning.

How can you tell if this bookkeeping problem is fraudulent activity or just a simple mistake?

When it comes to ethics in accounting the data is in and the numbers aren’t pretty! According to a global study on ethics by the Association of Chartered Certified Accountants (ACCA), 55% of accounting professionals surveyed said they have witnessed unethical behavior at some point in their careers and 25% said they have previously experienced pressure to act unethically. It’s no surprise then that 41% of respondents reported that ethical leadership and culture were top priorities at their organizations.

Sarah Lane, Head of Ethics and Assurance at ACCA responded to these findings in saying, “These insights underscore the need for robust ethical leadership and culture in organizations, and ongoing learning and development to support professional accountants in navigating these challenges.”

So, how can accounting and finance leaders combat these kinds of ethical challenges more effectively? Addressing today’s increasingly complex ethical issues requires strong leadership!

What would we do without our accountants? We rely on them for accuracy, reporting, transaction processing, analysis, and financial advice. For non-accountants, the discipline can be a mystery. So, we try to find a good accountant to add to our team and then we trust them to do their job. That’s what we should do, right?

Actually, no.

You shouldn’t trust your accountant. Well, hopefully, you can trust them, but you shouldn’t.

In early July it was released that Amazon had fallen victim to a fraud scheme perpetrated by one of its Operations Managers, Kayricka Wortham, at its Smyrna, Georgia location. In just 19 months, Wortham managed to steal almost $10M before getting caught.

How did this happen?

There are professions that most people would consider trustworthy. Doctors & nurses, firefighters, and teachers all come to mind.  How about accountants?  Do you trust your bookkeeper?  The reasonable answer here is: Yes!  Trust is often built over time, through relationships and evidenced by past and ongoing performance.  The reality is, if you didn’t trust your employees, they probably wouldn’t still be working for you.

This is Part 3 of a series on the causes of a perfect employee fraud scenario.  Read “Employee Fraud Factor #1: Pressure” here, and “Employee Fraud Factor #2: Opportunity” Part 2 here.

In case you missed Part 1 & 2, there was once a really smart guy, Donald Cressey, who created a theory that said: “If three factors were met, any ordinary, trusted person could bring themselves to commit fraud.”

This is part 2 of a series on the causes of a perfect fraud scenario.  Read “Employee Fraud Factor #1: Pressure” here.

In case you missed Part 1, there was once a really smart guy, Donald Cressey, who created a theory that said: “If three factors were met, any ordinary, trusted person could bring themselves to commit fraud.”

In other words, given the right situation (or perhaps wrong situation), anybody could commit fraud.  Not just criminals, not simply “unethical” people, and certainly not just somebody ELSE’s accounting staff.

The three factors include:

>  Pressure
>  Opportunity
>  Rationalization

In Part 1 we talked about the first factor, Pressure, and how a person with an apparently SECRET financial problem might feel no other option than to steal company money.  They are on the prowl for just the right opportunity!