Forensic accountants investigate occupational fraud every day, but many business owners don’t realize the prevalence of these schemes. Occupational fraud is the largest and costliest type of fraud, and only a fraction of cases ever come to light.
Many businesses find the expense of fraud investigations prohibitive, allowing many schemes to go unchecked until losses are too big to ignore. A typical fraud case lasts 12 months before being uncovered, with losses compounding the longer the fraud continues.
It doesn’t have to be this way. Forensic accountants can use Verified Financial Intelligence (VFI) to make investigations faster and less resource-intensive. As a result, pursuing fraud cases becomes more cost-effective for firms — enabling even smaller teams to pursue a greater volume of cases.
VFI empowers forensic accountants to deliver superior results and enhance their professional capabilities, business opportunities, and the overall effectiveness of fraud detection and deterrence.
“By lowering the bar of cost, effort, and turnaround time, you can deliver greater insight with more confidence across a larger number of cases,” said McDonald.
The Association of Certified Fraud Examiners (ACFE) Occupational Fraud 2024: Report to the Nations® reveals the troubling reality of business fraud. The report’s authors estimate that organizations lose 5% of revenue to fraud annually, totaling $5 trillion globally. The median loss is $145k, and no organization is immune.
While the median scheme lasted 12 months before being discovered, several specific types of fraud had a median length of 18 months:
Financial losses quickly compounded the longer the fraud continued:
Employees at all levels perpetrate fraud, but individuals of higher rank tend to engage in schemes of greater length and cost. According to the ACFE, asset misappropriation was the most common but least costly scheme, while financial statement fraud happened the least but resulted in the highest losses.
These statistics demonstrate the market opportunity for forensic accountants. Leveraging VFI platforms for investigations empowers firms to help their clients reduce the damage done by fraudsters.
Forensic accountants aren’t just processing numbers, they are working with people. Fraud causes more than financial loss — it inflicts emotional devastation. Perpetrators are typically in a position of trust. Whether they are the CEO or the administrative assistant, the sense of betrayal is visceral.
“When someone betrays us in a personal situation, it's devastating. Now, translate that into a business relationship — people are embarrassed that they allowed this to happen to them,” said Tiffany Couch, Principal at Acuity Forensics, author of The Thief in Your Company and a Valid8 customer. “I've handed Kleenex to owners of mom-and-pop companies and CEOs of publicly traded companies who have suffered fraud, not because of the amount of money, but because they couldn't believe they trusted that person.”
Expedited investigations and conclusive evidence help fraud victims begin to move forward.
"I've handed Kleenex to owners of mom-and-pop companies and CEOs of publicly traded companies who have suffered fraud, not because of the amount of money, but because they couldn't believe they trusted that person."
A year or more is a long time for someone to hide nefarious activities. Many business leaders who discover fraud ask themselves, “How did I miss this?” There’s usually not one single reason but rather a variety of factors. Understanding these circumstances helps forensic accountants better serve their clients.
Most businesses don’t expect to be fraud victims, so they aren’t looking for it. In some cases, organizations have insufficient internal controls to prevent or catch fraudulent behavior. The ACFE reported that more than half of cases occur due to a lack of internal controls or an override of existing controls.
A business conducts thousands or even millions of transactions; reviewing each one is not feasible. This reality gives a trusted person the cover they need to hide their misdeeds in an endless stream of unscrutinized data.
A leader’s explicit trust in their employees may lead them to disregard or rationalize subtle red flags. In these cases, they may not acknowledge the fraud until it becomes too damaging to dismiss.
“I have had company leaders literally push the document away when I show them the evidence of fraud,” said Couch. “It's as if their minds can't reconcile the betrayal with their trust in that person.”
The difficulty of conducting an investigation also contributes to fraud schemes' longevity. Financial evidence preparation and analysis are long and arduous, and many organizations — especially smaller ones — lack the resources to execute an inquiry themselves.
But hiring investigators, lawyers or forensic accountants is also expensive and time-consuming. Forensic accountants work diligently, but manual data preparation is laborious, often taking days or even weeks. Businesses pay accounting teams by the hour, and these fees add up quickly.
For many businesses, one or two suspicious transactions or bank statements do not justify the cost and hassle of an investigation, so they let it go until they are certain they are being defrauded. By then, the losses will be significant, and recovery will be far more difficult.
Businesses often start with vague suspicions or red flags, leading them to wonder if it’s worth the time and resources to investigate. There's no guarantee that an investigation will uncover actual fraud. Even if it does, the evidence may not be enough to definitively prove it, especially when time constraints allow only a cursory glance at the mountain of data, hampering the development of a robust case narrative.
An unsuccessful investigation wastes resources and damages relationships, while a successful prosecution may generate negative publicity. Even though the business is the victim, its name becomes associated with the criminal case.
The ACFE found that nearly 60% of businesses did not recover any of their losses, leaving some leaders skeptical about an investigation’s return on investment.
“Consider the perspective of a regional soccer association president who has diligently raised $60,000 over the course of a season. They may suspect fraud, but the prospect of initiating an investigation, with anticipated costs consuming a significant percentage of these funds, inevitably prompts concerns about the likelihood of confirming fraud and the recoverability of potential losses,” said McDonald. “Situations like this are very common, which is why many cases never see the light of day.”
Fraud investigations don’t have to be prolonged, burdensome and costly. The challenges of uncovering occupational fraud lie not in the scheme’s complexity but rather in preparing vast amounts of financial evidence.
The most demanding aspect of a financial fraud investigation is the exhaustive extraction and cross-checking of data to find anomalies that suggest fraud.
Right now, forensic accountants spend days or weeks manually combing through thousands of documents and transactions to extract, verify, reconcile and categorize financial evidence. Valid8’s research shows these low-level activities constitute 90% of the investigation time in most cases, leaving precious little capacity for in-depth analysis.
Data preparation and reconciliation is an ideal application for VFI platforms. Professionals can use these solutions to upload all financial evidence, including client accounting transactions, bank statements, brokerage statements, check images and deposit slips.
VFI organizes and verifies every piece of information in hours, including categorizing transactions and matching checks and deposit slips to banking transactions. That saves accountants significant headaches while reducing human error and delivering a more comprehensive, straightforward dataset that will stand up to rigorous courtroom standards. As teams gather more evidence, they can seamlessly incorporate it into the dataset.
Import bank statements, accounting transactions, check images.
Classify transactions by type and source.
Reconcile banking and accounting data.
Highlight discrepancies for further investigation.
Provide a clean, courtroom-ready dataset.
VFI dramatically shortens the time to insight from weeks to days, which can be a balm for fraud victims.
Finally, VFI visualization tools turn large datasets into visual narratives, enabling evidence-based views connecting the source and usage of funds. The intuitive images immediately highlight unusual or suspicious activities so accounting teams can undertake high-level tasks such as subpoenaing missing accounts and statements or scrutinizing irregular money movements.
VFI does not make conclusions regarding fraud. It manages the data, allowing accountants to spend their time analyzing the evidence and building a narrative.
With VFI, investigations immediately become faster, more economical and more thorough, generating a greater capacity for cases.
Access to the comprehensive banking history of a client enables complete analysis, which in turn creates robust and thorough evidence. VFI gives investigation teams confidence in their cases, knowing no data was overlooked. The evidence’s completeness and clear chain of custody strengthen its credibility and leave little room for challenges from opposing counsel.
VFI visualization tools simplify complex financial evidence into a straightforward story for stakeholders, judges and juries. Visual aids generated by these platforms bolster expert witness testimony by providing clear, compelling pictures of the fraud scheme. In addition to proving the case, clarity expedites settlement decisions.
VFI enhances the forensic accounting field, producing many benefits, including:
Valid8, the global leader in Verified Financial Intelligence (VFI) technology, was designed by forensic accountants to help professionals follow the money faster and more accurately, eliminating investigative risk, addressing staffing challenges, and improving the speed and quality of rendering a professional opinion.
Valid8 uses the latest in AI and automation technology to rapidly parse, categorize, match, and reconcile financial data from numerous sources. Hundreds of firms use Valid8’s software on some of the world’s most complex, high-profile cases.
If you’d like to take the first step toward enhancing occupational fraud investigations, contact us at info@valid8financial.com to schedule your 30-minute demo and let our team show you how you can reduce manual work and increase the thoroughness of your investigations.
Valid8 Financial would like to thank Tiffany Couch for her contribution to this ebook. Her insight and expertise, formed from decades of forensic accounting experience, illuminated the personal toll of financial fraud. This perspective drives home the value of providing expedited, conclusive evidence to clients so they can move forward personally and professionally. Couch is Acuity Forensics' CEO, founder and principal and author of The Thief in Your Company.
Valid8, the global leader in Verified Financial Intelligence (VFI) technology, was designed by forensic accountants to help professionals follow the money faster and more accurately, eliminating sample risk, addressing staffing challenges, and improving the speed and quality of rendering a professional opinion. Valid8 uses the latest in AI and automation technology to rapidly parse, categorize, match, and reconcile financial data from numerous sources. Hundreds of firms use Valid8’s software on some of the world’s most complex, high-profile cases.
Tod McDonald, CPA, CIRA, is the co-founder of Valid8 Financial. Early in his career, Tod was an auditor with Ernst & Young and has spent decades navigating complex financial situations, including leading an investigation that unraveled a $200 million real estate investment Ponzi scheme in Washington State. Motivated by this experience, he co-founded Valid8 Financial to build a Verified Financial Intelligence solution to expedite data prep, eliminate sample risk and improve the speed and quality of rendering a professional opinion on complex financial cases.