Potato Grower

20 IGSA | 2015 2015 YEARBOOK Considerable effort is expended to determine the cost of fraud. Ag producers want to know how significant the risk is to their organizations. Unfortunately, the nature of fraud means that much of its costs are hidden. Many fraud schemes are never detected or continue for years before they're caught, which means at any given time an organization might be losing money to fraud yet be completely unaware of the losses. In addition, even when fraud schemes are caught, many of them are never reported or measured. Furthermore, most frauds carry substantial indirect costs such as lost productivity, reputational harm, loss of business, and expenses associated with the investigation and attempted recovery of stolen assets. Although it may be impossible to determine the precise cost of occupational fraud, it is critical for you to try to understand as much as you can about the financial harm caused by these crimes. Our experience in detecting and preventing fraud has revealed consistent and clear patterns in the form fraud schemes take and the relative cost of each scheme type. Specifically, frauds can be classified into three primary categories: asset misappropriation, corruption and financial statement fraud, with each category further broken down into several subcategories. As illustrated in the Association of Certified Fraud Examiners' 2012 Report to the Nations, perpetrators of fraud have historically been well-profiled regarding their proclivity to commit fraudulent acts. Quantitative observations regarding a perpetrator's position, gender, age, tenure, education level and employment history are important factors in determining an individual's motivation, opportunity or rationalization to commit fraud. The report also illustrates the qualitative red flag behavior commonly demonstrated by perpetrators, regardless of their status in those areas. Perpetrators consistently displayed psychological behavioral traits consistent with the stress or fear of perpetrating fraud, including living beyond one's means, having an unusually close association with vendors or customers, irritability, suspiciousness, defensiveness, complaining, addictive problems, and excessive control issues. While fraudsters' circumstances may vary, all are subject to the behavior traits inherent to perpetrating fraud. The pervasiveness of these psychological behaviors is strongly correlated with the most common source of detection—employee tips. An employee's ability to discern these red flag behaviors among peers accounts for the most effective method of detection. This suggests to me that of all the sophisticated tools used to detect fraud, an examiner's most powerful and effective tool is the ability to emotionally and psychologically profile the perpetrator. The following have been identified as potential signs of fraudulent behavior: • Does the employee never call in sick regardless of how physically ill they appear, or has the employee stopped taking full weeks of vacation in which someone else performs their duties? A reluctance to take regular holidays may be due to the need to conceal an ongoing fraud. Fraud can often come to light during a sudden and unexpected absence of the person perpetrating it. Some organizations have a rule that staff must take several consecutive days' of vacation each year—both for the physical well-being of the employee and to reduce the opportunity for long-term fraud to go undetected. During the employee's absence, another employee should be asked to perform the job functions of the vacationing employee. • Is the employee working odd hours when no one else is there? Regular late working by individual employees should always be investigated, as it may result from a need to cover up fraudulent activities in the absence of other staff. A trusted employee can be in a powerful position, especially if management has become relaxed about monitoring his or her activities. • Has an employee's lifestyle suddenly greatly improved with no explanation? An apparent discrepancy between an employee's earnings and lifestyle is a common indicator of fraud. Fraudulent activity also manifests itself through abnormalities in accounting documentation and procedure. By Daniel L. Packard, MAcc, CPA, CFE, Cooper Norman CPAs & Business Advisors Safe & Secure Protecting your business from fraud

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