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Accountants can be fraud detectors 

By Karen Herland

A generation of young people are imagining themselves as scientific detectives because they grew up watching CSI. Fewer kids dream about becoming accountants.

It might be time to shed light on the glamorous world of certified fraud examiners (CFEs).

Dominic Peltier-Rivest (Accountancy) has been a CFE for two years, and a member of the Association of Certified Fraud Examiners. The ACFE has grown to 125 chapters serving 40,000 members around the world since it began in Texas in 1988.

Peltier-Rivest, who earned his PhD studying financial statement fraud, recently worked with the ACFE to produce a report that sheds light on the circumstances and cases of occupational fraud in Canada. The research is based on 90 cases that have been recently investigated by ACFE members.

“We estimate that the equivalent of five per cent of sales are lost annually through occupational fraud,” Peltier-Rivest said. “That’s a pretty large percentage to lose in an competitive market.”

Detecting Occupational Fraud in Canada: A Study of its Victims and Perpetrators compares information on what types of fraud are committed, discovered and investigated.

Overall, the report suggests that smaller organizations are more likely to be hit by fraudsters. “People tend to know each other in smaller organizations. It is a lot harder to check on the work of someone you consider a friend.”

Peltier-Rivest said he proposed the research to the ACFE for a number of reasons. “Professionals can use the information to better detect and prevent cases of fraud. And businesses can make sure that effective controls are put into place.”

The results provide useful examples for the course on fraud examination he developed for the JMSB.

The information is also valuable for policy development. Although Peltier-Rivest’s study has a relatively small sample size, the findings are comparable to similar studies in the U.S.

For instance, well under 10 per cent of occupational fraud is detected through external audits. In fact, 42 per cent of cases are discovered because of an anonymous tip.

“Auditors are expected to go through a lot of material. Finding evidence of fraud is like trying to find a needle in a haystack,” Peltier-Rivest said. “It’s a bit like police officers going door-to-door looking for violence in the family.”

Phone calls alert the police where to investigate, and anonymous tips provide the same direction to auditors. The measure is so effective that publicly owned companies are now required to have fraud tip lines.

However, simply establishing a hotline without any other effort may not be effective. In Quebec, there was a lot resistance to the tip line requirement. Peltier-Rivest said companies need sensitization programs so that people understand the potential costs associated with fraud in terms of lost wages, or even lost positions if a business can’t recover.

The research suggests sensitization programs for employees and regular surprise audits also reduced either the amount or extent of fraud in the companies that used them. Fraud was also detected earlier in those circumstances.

Peltier-Rivest would like to eventually develop a model to see how these variables interact in fraud detection and prevention.

In terms of people who commit fraud, fewer of them are in upper management or director positions. But when they are, they tend to be responsible for far greater losses in dollar amounts. Almost three-quarters of those charged with fraud are men and almost 90 per cent have no previous history of charges.

Cases involving two or more people working together tend to involve much more significant amounts of money. “When people are colluding, some of the controls that might detect the situation become ineffective.”

The full report is available at www.acfe.com/fraud/downloads.asp.