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