Us Surgical Corporation Case Study

But these don't tell the whole story. CPAs detected countless financial statement frauds, embezzlements and tax offenses before they became serious problems. Take these examples: In one instance a New Jersey CPA helped his client avoid a loss of $2.4 million (and a probable criminal indictment) by advising him not to invest in an illegal tax shelter and, in another, during a review and compilation engagement for a small client, a Nebraska CPA discovered the bookkeeper had embezzled $420,000.

Because CPAs are becoming more educated about the subject of fraud, success stories such as the above are growing more common. It's a good thing, too, because some experts say changing demographics have led to more white-collar crime. Criminologist Gil Geis, a former member of the President's Crime Council, says there's a correlation between crime and age: "Younger people--especially males--are likely to commit more traditional crimes such as robbery, larceny and assault. Conversely, fraud and white-collar crimes are typically committed by older, better-educated offenders." Our society as a whole is getting older, and young and old alike are getting more sophisticated. On top of that, the use of computers and technology to aid in the commission of crimes has become widespread.

Most CPAs have had little or no antifraud training, so educating them has become critical. This article, the first of a new series on fraud detection, is meant to be a part of that effort. In future issues, we will look at different aspects of fraud methodically--what it is, who commits it, how they do it and how CPAs can respond.

Figures and Facts About Occupational Fraud

# Small businesses experience fraud losses at a rate of nearly 100 times that of the largest ones.

# Occupational frauds fall into three categories: asset misappropriation, corruption and fraudulent financial statements.

# Asset misappropriations account for more than 80% of cases, but they are the least expensive of the three fraud categories.

# Fraudulent financial statements, which account for less than 4% of fraud litigation, are the most costly occupational frauds.

# Real estate financing has the highest fraud losses; education, the lowest.

# A direct link exists between the age, sex, education and position of the perpetrator and the amount lost. The highest median losses occur with older male executives who are senior officials of their organizations. The smallest losses are with high-school graduates who have been with a company for less than a year.

Source: The Association of Certified Fraud Examiners, Report to the Nation on Occupational Fraud