David Anderson is principal of David Anderson & Associates, a Philadelphia forensic accounting firm that provides a full range of fraud investigation, fraud deterrence programs, and forensic accounting services in Philadelphia and the Delaware Valley.
This blog – the fourth of a five-part series by forensic accounting expert David Anderson of David Anderson & Associates, a Certified Fraud Examiner in Philadelphia – continues Anderson’s look at the Association of Certified Fraud Examiners (ACFE) 2018 Report to the Nations – 2018 Global Study on Occupational Fraud and Abuse.
In this week’s installment, Anderson explores the significant role corruption plays in corporate and organizational fraud.
- Transparency International, the global coalition against corruption (transparency.org) defines corruption as:
“The abuse of entrusted power for private gain. It can be classified as grand, petty and political, depending on the amounts of money lost and the sector where it occurs.”
- The 2018 Report shows that 38 percent of all frauds involve some form of corruption with the median loss from corruption being $250,000, and the fraud lasting an average of 22 months.
- The 2018 Report identifies four main types of corruption:
- Conflicts of interest, including purchasing schemes and sales schemes
- Bribery, including invoice kickbacks and bid rigging
- Illegal gratuities
- Economic extortion
- Corruption is the most pervasive form of fraud worldwide.
- Seventy percent of corruption cases were perpetrated by someone in a position of authority (32 percent by owners or executives and 38 percent by managers)
- The industries with the highest proportion of corruption cases are:
- The Energy Sector (53 percent)
- Manufacturing (51 percent)
- Government and Public Administration (50 percent)
- Corruption is the most likely fraud committed by employees of companies and organizations with fewer than 100 employees.
- Fifty percent of all corruption cases are detected by a tip.
- Conflict of interest cases principally involve:
- Purchases from favored parties, regardless of whether the party provides the best quality and/or lowest prices.
- Sales to favored parties at bargain prices. Often these sales are lower than those offered to other parties (or at a price usually reserved for larger customers).
- Favored parties are often friends, relatives or parties in which the purchaser has a financial interest.
- Bribery cases principally involve:
- Kickbacks to the purchaser for purchasing either more goods or services than would be normally purchased or at higher prices than would normally be paid.
- Bid rigging whereby the purchaser provides inside information to a favored vendor in return for payments or kickbacks.
- Bid rigging can also be achieved by working with the favored vendor to write the request for proposal (RFP) in such a way that only the favored vendor can meet the RFP’s requirements.
- The most common red flags identified in corruption cases were:
- Living beyond one’s means (identified in 43 percent of corruption cases)
- Unusually close association with a vendor or customer (identified in 34 percent of corruption cases)
- Known personal financial difficulties (identified in 23 percent of corruption cases)
- “Wheeler-dealer” attitude (identified in 21 percent of corruption cases).
Next week’s blog article will look at how companies and organizations react after a fraud has been discovered and what their experiences are in attempting to recover fraud losses.
If you require the services of a Certified Fraud Examiner or any other forensic accounting services in Philadelphia and the Delaware Valley, please contact the Philadelphia forensic accounting firm of David Anderson & Associates by calling David Anderson at 267-207-3597 or emailing him at firstname.lastname@example.org.
About David Anderson & Associates
David Anderson & Associates is a Philadelphia forensic accounting firm that provides a full range of forensic accounting services in Philadelphia and the Delaware Valley. The experienced professionals at David Anderson & Associates provide forensic accounting, business valuation, fraud investigation, litigation support, economic damage analysis, business consulting and outsourced CFO services. Company principal David Anderson has more than 30 years of experience in financial and operational leadership positions and is a Certified Public Accountant, a Certified Fraud Examiner and a Certified Valuation Analyst.