Unmasking the Insider Threat

Elevate Your Approach to Occupational Fraud Investigations

Introduction

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.

“The volume of potential fraud cases far exceeds the current investigative capacity of the market, largely due to financial constraints and staffing limitations.”
Tod McDonald
CPA, CIRA, co-founder of Valid8

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 scourge of occupational fraud

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:

  • Billing
  • Check and payment tampering
  • Expense reimbursements
  • Financial statement fraud
  • Payroll 
  • Skimming

Financial losses quickly compounded the longer the fraud continued:

Fraud Duration
Fraud Duration & Financial Loss
Financial Loss
Less than 6 months
$30,000
7-12 months
$111,000
13-8 months
$200,000
19-24 months
$208,000
25-36 months
$250,000
37-48 months
$650,000

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. 

The emotional cost of fraud

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.

Fraud isn't just about numbers; it's about trust and betrayal.

"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."

Tiffany Couch
Principal, Acuity Forensics

Why does fraud go on so long?

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. 

Blind spots 

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.”

Burdensome investigations

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.

Risk vs. reward considerations

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.”

“Verified Financial Intelligence platforms allow the forensic accounting industry to make investigations faster and available at a greatly reduced cost, overcoming many businesses’ hesitations.”

Tod McDonald
CPA, CIRA, co-founder of Valid8

Verified Financial Intelligence: Accelerating fraud investigations

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.

Verified Financial Intelligence (VFI) reshapes the fight against fraud, empowering investigators and forensic accountants to pursue more cases in less time with a higher likelihood of success in proving fraud.

Faster time to insight with automated data preparation

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. 

Data Upload

Import bank statements, accounting transactions, check images.

Automated Categorization

Classify transactions by type and source.

Transaction Matching

Reconcile banking and accounting data.

Flagging Anomalies

Highlight discrepancies for further investigation.

Final Insights

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.

“People are uncomfortable with uncertainty. With this expedited analysis, we can quickly give fraud victims reliable data to confirm their suspicions, which helps them begin to move forward emotionally and professionally.”
Tiffany Couch
Principal, Acuity Forensics

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.

Supporting successful outcomes

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.

Tips for effective fraud presentations

Keep the information and explanation simple.
Clearly articulate your qualifications, the scope of engagement, steps taken and findings.
Show evidence for each step (e.g., deposits, transfers, checks).
Avoid complex statistical analyses.
Use visualizations to tell the story of key transactions.

Benefits of VFI

VFI enhances the forensic accounting field, producing many benefits, including:

  • Reduced losses and higher recovery rates
    Accelerated verification of fraudulent activity enables organizations to disrupt fraud schemes more quickly, mitigating financial damages. Additionally, the timely recognition of fraud increases the chances of recouping losses. 
  • Capacity to take on more cases
    By expediting data preparation, firms free up time and resources to take on additional investigations without hiring additional staff. Forensic accountants also gain the analytical capabilities to pursue more complex cases.
  • More affordable and accessible investigations
    With shorter, more thorough and more cost-effective ways forward, investigations become more accessible for smaller organizations. 
  • Enhanced reputation building
    Firms using VFI can provide exceptional service at competitive rates, helping them build a distinguished reputation in the industry to attract larger, more high-profile cases.
  • Higher staff retention rates
    Eliminating tedious tasks makes forensic accounting jobs more rewarding. Employees are more likely to be attracted to a firm using modern processes and technology. Retention increases at firms that provide opportunities for employees to use their critical thinking skills rather than spend their days predominantly entering and reconciling data.
  • Fraud deterrence
    In the long term, the increased frequency and reach of comprehensive, effective fraud investigations will close the door on fraudsters. The heightened probability of detection serves as a significant disincentive for potential perpetrators. 

Valid8’s Verified Financial Intelligence Platform

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.

Acknowledgment

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.

Software features of Valid8 include:

Data extraction
Automated quality control
Transfer matching
AI categorization
Custom categories
Check name and memo field extraction
Deposit slip extraction
Gap reports
Transaction Filters
Multicurrency capabilities
Data visualization
Financial Activity Report

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.

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