Manufacturing Fraud Claims
A 2024 report issued by the Association of Certified Fraud Examiners (ACFE) revealed several fraud trends impacting manufacturing companies. Occupational Fraud 2024: Report to the Nations found that industry companies experienced a median loss of $267,000 per incident – the third highest of all industries examined. Additional trends examined include common fraud schemes by industry, high-risk departments, and behavioral red flags. The report’s details provide essential insights into how fraud is perpetrated and the most effective means of preventing it. Staying updated on these trends can help a company design the most effective fraud prevention programs. To help clients, prospects, and others, Klatzkin has summarized the key details below.
About the Report
The information included in the report is based on the ACFE 2023 Global Fraud Survey, conducted from July to September 2023. Respondents were asked to provide details about the single most significant fraud case they had investigated. To be included, the case must have involved occupational fraud, the investigation must have occurred between January 2022 and the time of the survey, the investigation must be completed, and the respondent must be reasonably sure the perpetrator(s) has/have been identified.
Key Fraud Findings
- Loss Due to Fraud – The report examined median fraud loss by industry and found manufacturing companies experienced an average median loss of $267,000 per incident. The only other industries that experienced a more significant loss are mining ($550,000) and wholesalers ($361,000). Others include real estate ($200,000), insurance ($190,000), and farming ($165,000). These numbers show the financial consequences that bad actors can have on the financial performance of a business. It also acts as an impetus for these companies to implement more anti-fraud controls.
- Common Fraud Schemes – There was also an examination of the common types of fraud schemes perpetrated by industry. For manufacturing, it was found that 55% of cases involved corruption, 29% noncash, 27% billing fraud, 10% payroll, 9% skimming, and 6% cash larceny. Less common tactics included check and payment tampering, expense reimbursements, register disbursements, and cash on hand. Understanding the most common schemes can help management design controls that target these areas.
- Departments with the Highest Risk – The report also examined which departments provide the greatest risk for fraud. It was determined the Board of Directors experienced the highest median loss of $800,000 per incident. Others include executives/upper management ($793,000), marketing and public relations ($321,000), finance ($285,000), accounting ($208,000), and warehousing ($200,000). Knowing the departments with a higher potential for loss can help management determine where anti-fraud controls should be deployed.
- Behavioral Red Flags—Many perpetrators exhibit one or more red flag behaviors when engaged in illicit activities. It was discovered that 39% of all cases involved a perpetrator living beyond their means, 27% financial difficulties, 20% unusually close relationships with vendors, 13% control issues, 13% irritability or defensiveness, 12% a “wheeler dealer” attitude, and 8% complaining of low pay. Additional red flags include past legal problems, refusal to take a vacation, and addiction problems.
- Fraud Controls at Victim Organizations—It is incorrect to think victim organizations did not have any controls in place when fraud was being committed. It was found that 85% had a formal code of conduct policy, 80% had an internal audit department, 72% had a management review, 71% had a tip reporting hotline, 63% had employee fraud training, 48% had formal fraud risk assessments, and 45% had proactive data monitoring. This information shows the importance of implementing multiple controls to limit the opportunity for bad actors.
Contact Us
Although it is impossible to completely eliminate the threat of fraud, this report provides essential insights useful when designing or optimizing fraud controls. Given the high amount of loss per incident, manufacturing companies should carefully review these findings. If you have questions about the information outlined above or need assistance with another tax or accounting issue, Klatzkin can help. For additional information, call 609-890-9189 or click here to contact us. We look forward to speaking with you soon.