Recovering from fraud’s impact on finances, reputation


Occupational fraud poses significant risks beyond mere financial damage, threatening the reputation, culture, and relationships of businesses. Companies confronted with fraud must first According to the Association of Certified Fraud Examiners (ACFE) in its "Occupational Fraud 2024: A Report to the Nations," 67 percent of organizations choose to terminate employees involved in fraud. Additionally, 57 percent of companies refer these cases to law enforcement, resulting in a variety of outcomes.address the immediate aftermath, which often involves terminating the perpetrator, pursuing civil action, or involving law enforcement. Prompt action and a review of internal controls are crucial in these situations.

Victim Response to Fraud

According to the Association of Certified Fraud Examiners (ACFE) in its “Occupational Fraud 2024: A Report to the Nations,” 67 percent of organizations choose to terminate employees involved in fraud. Additionally, 57 percent of companies refer these cases to law enforcement, resulting in a variety of outcomes: 45 percent lead to guilty pleas or no contest, 27 percent end in convictions at trial, and 14 percent see law enforcement decline prosecution.

Legal counsel plays a pivotal role when fraud is discovered. Businesses are advised to consult their attorney before initiating any investigation. Legal experts can guide decisions on suspending or terminating suspects, notifying them of these decisions, and communicating with other employees.

Engaging a forensic accountant is also recommended. These specialists can analyze financial records, identify suspects, interview witnesses, recover losses, and collect evidence for potential legal proceedings. Notably, it may be advantageous to have your attorney hire the forensic accountant.

Investigations typically involve several key steps: collecting and reviewing documents (including digital files), interviewing suspects and colleagues, and preparing a detailed investigative report. Businesses must then decide, with legal advice, whether to pursue criminal or civil charges.

Mitigating Financial Losses

Recovering financial losses from fraud can be challenging. The ACFE reports that 57 percent of organizations recover nothing, 30 percent achieve partialThe ACFE found that organizations without surprise audits suffer median losses of $200,000 in fraud cases, whereas those with surprise audits see a median loss of $75,000—a 63 percent reduction. recovery, and only 13 percent recover all losses.

These statistics underscore the importance of robust internal controls. For instance, the ACFE found that organizations without surprise audits suffer median losses of $200,000 in fraud cases, whereas those with surprise audits see a median loss of $75,000—a 63 percent reduction. Effective internal controls, while not foolproof, can significantly reduce losses and potentially prevent fraud.

Additional controls that aid in faster fraud detection and reduce financial losses by at least 50 percent include:

  • Management reviews
  • Routine financial statement audits
  • Anonymous fraud tip lines
  • Fraud training for managers
  • Written antifraud policies
  • Proactive data monitoring

Lack of internal controls is the most common factor in 32 percent of fraud incidents, with another 19 percent involving the overriding of existing controls. Therefore, it is essential not only to establish controls but also to ensure their rigorous enforcement.

Addressing Fraud Risk

Decisions on how to handle employee fraud depend on the severity of the fraud, available evidence, and other factors. To avoid making such difficult decisions, businesses should proactively address their internal controls and risk management strategies.

For assistance in strengthening your organization’s internal controls and mitigating fraud risks, talk to the professionals at Sol Schwartz & Associates. Just leave us your contact information below and we will get right back to you.