| Did you know that it is very likely your company is a | | | | fraud and abuse relate to:Travel and entertainment |
| victim of fraud? In fact, it's probably happening right | | | | expenses |
| now! Fraud takes many forms - some obvious and | | | | Unauthorized use of corporate credit and purchasing |
| well known, others subtle and unmarked. This two-part | | | | cards |
| article sheds some light on the topic. Part 1 helps you | | | | Related party transactions |
| determine whether your company is vulnerable to (or, | | | | Receipt of free or below market-cost goods and |
| indeed, already a victim of) fraud. It discusses fraud in | | | | services from vendors, suppliers, etc.And it can be |
| further detail and provides definitions and real-life fraud | | | | very difficult to actually pinpoint the precise point at |
| examples. Part 2 goes on to explain how you can | | | | which the fraud occurred. Corporate fraud is found in |
| minimize fraud in YOUR company.What is | | | | many forms which are not particularly obvious at first |
| Fraud?Companies around the world lose a staggering | | | | glance. For example, companies spend millions on |
| amount of money to fraud and abuse. According to | | | | accounting packages, CRM, ERP, and database |
| government and private studies, the following example | | | | solutions that have the highest grade of security and |
| is typical. A manufacturing company earns $60 million | | | | data integrity to manage their businesses. |
| in revenue and $18 million profit per year. Fraud and | | | | Unfortunately, in the majority of cases, this data ends |
| abuse cost approximately 6% of revenue ($3.6 million). | | | | up in spreadsheets where the data integrity is very |
| The company's profit margin on revenue is 30%, | | | | easily lost. This final stage of the information journey is |
| therefore they need to generate an additional $12 | | | | known as THE FRAGILE LAST MILE. During the |
| million in revenue (20% additional revenue) just to | | | | fragile last mile, there are typically no controls or |
| cover the cost of fraud and abuse. (Source | | | | standards and no IT accountability, so the information is |
| PWC.)The enactment of the United States Sarbannes | | | | completely vulnerable to abuse.For example, changing |
| Oxley Act of 2002 was a direct result of numerous | | | | a plus and minus sign in a spreadsheet caused Fidelity |
| well-publicized accounting scandals (some may say | | | | to pay out $2.4 billion in dividends for their Magellan |
| "frauds") involving high-profile companies. The intent of | | | | fund. A loss of $1.2 billion became a $2.4 billion dollar |
| the Act was to not only close the loopholes that made | | | | payout because of a spreadsheet cell formatting |
| these transgressions possible, but to also hold | | | | error.Similarly, CA (Computer Associates) published |
| companies accountable for those transgressions.But | | | | their financials with a $60 million error due to a tiny |
| what exactly is fraud?The broadest definition of fraud | | | | spreadsheet mistake.Spreadsheet error research |
| (as per the Merriam-Webster's Dictionary of Law, | | | | carried out by audit firms, PWC and KPMG, show that |
| Copyright 1996 Merriam-Webster, Inc) is:"any act, | | | | around 9.0% of large spreadsheets contain errors.How |
| expression, omission, or concealment calculated to | | | | Do You Minimize Fraud in Your Company? Those |
| deceive another to his or her disadvantage; specifically | | | | who perpetrate fraud include people of all ages, |
| : a misrepresentation or concealment with reference to | | | | experience levels, salary levels, ethnic backgrounds, |
| some fact material to a transaction that is made with | | | | genders, geographic regions, and other demographic |
| knowledge of its falsity or in reckless disregard of its | | | | differentiators. In order to minimize and detect fraud, |
| truth or falsity and with the intent to deceive another | | | | you need to implement corporate expense |
| and that is reasonably relied on by the other who is | | | | management software controls to create an |
| injured thereby" Some Examples of FraudBy this | | | | environment where fraud cannot flourish.The second |
| definition, fraud encompasses such things as | | | | (and final) article in this series discusses how you can |
| negligence in ensuring business expenses are actually | | | | stop fraud from occurring in your company.Peter |
| incurred, reported on time, or at the accurate dollar | | | | Granger is CEO of Inlogik Pty Ltd. Inlogik owns and |
| amount. It also encompasses reckless disregard in | | | | distributes ProMaster, a corporate expense |
| separating personal expenses from business | | | | management software solution used by over 250 |
| expenses and consistent failure to use due care and | | | | corporations in 40 countries. |
| follow policies.Four of the more common forms of | | | | |