Three Basic Fraud Types

Employee fraud comes in many shapes and sizes. It goes by several different names, including internal fraud, occupational fraud, or employee dishonesty. There are three basic types of fraud:asset misappropriation, bribery and corruption, and financial statement fraud. In many fraud schemes perpetrated by employees, more than one type of fraud is present.

We hear about asset misappropriation the most often, probably because they are the frauds that occur the most often and they’re the easiest schemes to understand. An asset misappropriation might include things like check forgery, theft of money, inventory theft, payroll fraud, or theft of services.

Recent statistics show that asset misappropriation happens in over 91% of fraud schemes. This easily makes it the most common fraud, but statistics show that it is the least expensive fraud on a per-fraud basis. The average asset misappropriation costs a company $150,000.

The next most frequently occurring fraud scheme is bribery and corruption, which is part of about 30% of all fraud that is uncovered. Bribery and corruption include schemes such as kickbacks, shell company schemes, bribes to influence decision-making, manipulation of contracts, or substitution of inferior goods. The average bribery/corruption scheme is far more costly than asset misappropriation, at $538,000 per scheme.

The least common type of fraud is financial statement fraud. Although it occurs least frequently, in only 10% of all fraud cases, it is easily the most expensive. The average financial statement fraud costs a company $2 million. This type of fraud centers on the manipulation of financial statements in order to create financial opportunities for an individual or entity. Think manipulation of stock price, increased year-end bonuses, favorable loan terms, or other indirect benefits from the financial statement fraud.

It is easy to see how quickly the cost of fraud can rise. Could your company withstand a fraud the size of any of the above averages?