Fraud takes 5 percent bite out of business revenue
The world economy loses an estimated $3.5 trillion annually to fraud.
Broken down based on gross domestic product, approximately 5 percent of annual revenue of U.S. businesses is lost to fraud, said Tim Bergsma, an accounting professor at Davenport University and an occupational fraud consultant.
Davenport’s accounting programs include fraud examination and forensic accounting tracks.
Bergsma said, as a consultant, he sees increasing attention being brought to occupational fraud and white-collar crimes.
He will host an informational session, “General Strain Theory as a Predictor of Occupational Fraud,” at 7:30 a.m., Wednesday, July 22, at The Goei Center, 818 Butterworth St. SW.
“The event is aimed at helping organizations be wise and deliberate about the realities of white-collar crime and fraud and have the appropriate prevention strategies in place,” Bergsma said.
He said a casual perusal of local, regional and national media will show any number of wrongdoings on a daily basis, and added that the 5 percent annual revenue loss is a conservative estimate by the Association of Certified Fraud Examiners.
Bergsma compared the amount of the loss to the 2008 financial sector bailout of $700 billion.
“The economy loses more than that every year,” he said. “That national debate was a one-time bailout. All these numbers are just to heighten the attention and increase awareness.
“These issues are real, and the question becomes: What do we do about these realities?”
Prevention is the easiest way to avoid fraudulent activity, Bergsma said.
He drew a parallel to health care.
“Most experts agree that it’s wise to take care of your health and that an ounce of prevention is worth a pound of cure,” he said. “The healthier choices you make today, the more you’re doing on the preventive side, and that’s the best money you can spend in terms of health care.”
He said most companies, however, haven’t put much of a priority on fraud prevention. He said reactive responses against wrongdoings are essentially fighting a losing battle. Being proactive is the best defense.
Bergsma said an important step many companies have yet to take is simply putting an anti-fraud policy in place. He said many companies may send employees to annual ethics training or diversity training seminars, but not enough are sending employees to anti-fraud training sessions.
“A large part is just making it a part of the organizational language,” he said.
Much of Bergsma’s recent research has been on the “strain theory,” which indicates a person is more likely to commit a crime as he or she moves through life battling the stresses and strains of everyday existence. He said the theory has been tested on “street crimes” but pertains to white-collar crimes, too.
The Association of Certified Fraud Examiners designed a study with 87 strain theory attributes, examining more than 2,900 cases of occupational fraud or white collar crimes. The study found strain significantly contributes to asset misappropriation and financial statement frauds.
He’ll discuss the results and his doctoral dissertation further at the July 22 event.
While fraud and white-collar crimes are much more talked about now, Bergsma said, he doesn’t think technology has made the incidence rates of such crimes rise. But those cases are more of a global concern now, he said, as technology offers new ways to perpetrate fraud.
“We wouldn’t be having this conversation 15, 20, 30 years ago,” Bergsma said. “If you were going to swindle someone, you used to have to be at arm’s length. You had to build up a relationship with them and then devise your wrongdoing and carry it out.
“Technology affords us the ability to do those things from a very long distance. It’s made it more than a local conversation.”
Bergsma wants to make sure people are aware of the fraud risks in business. He said there are many smart businesspeople in the world who need to realize how real fraud risks are and the steps that can be taken to mitigate them.
He said fraud cases are found in all sectors of the world, with no discrimination in size or industry.
“A lot of people don’t think it can happen to them,” Bergsma said. “Fraudulent behavior goes as far back as history is recorded. There is no immunity at any level.”