Fraud Law Alert
Employment Fraud’s Jaw Dropping Impact

Employment Fraud’s Jaw Dropping Impact

Employment fraud is a form of fraud perpetrated against organizations by employees, managers, executives, and owners.

No organization is immune from it, and its true costs will drop your jaw. Corporate Legal Departments, CFOs, and Boards all need to digest these startling numbers recently published by the Association of Certified Fraud Examiners:[1]

  • $6.3B–The amount of annual losses resulting from global employment fraud cases.
  • 5%–The amount of annual revenue lost by the typical organization.
  • $150,000–The median annual amount lost by an organization.
  • 23%–The number of employment fraud cases with losses greater than $1M.
  • $975,000–The highest median loss per scheme (financial statement fraud).
  • $200,000–The next highest median loss per scheme (corruption).
  • $125,000–The next highest median loss per scheme (asset misappropriation).
  • 10x–The multiplier when owners or executives commit the fraud compared to employees ($703,000 as opposed to $65,000).
  • 2x–The amount of median losses organizations lacking anti-fraud controls suffer compared to those with such controls.

One anti-fraud expert[2] lists five common schemes your organization needs to monitor:

  • Purchase-to-Pay (issuing fake purchase orders/invoices often using phantom vendors).
  • Credit Cards (using a company card for personal gain).
  • Payroll (paying phantom/deceased/terminated employees or charging for unworked overtime).
  • Sales and Receivables (inflating sales to increase bonuses/commissions or colluding with vendors to inflate prices).
  • Information Systems and Critical Data (stealing critical data or giving it to third parties).

No matter what scheme is used, employment fraud hurts your bottom line, and when discovered, it also takes its internal toll on trust/morale and externally harms your brand/reputation.

So what can you do? Develop a 3D perspective:

  • Define your risk, and make sure you have appropriate insurance coverage.
  • Design effective internal and external anti-fraud accounting controls to prevent and detect employment fraud.
  • Demand to be made whole by pursuing the fraudster, anyone who acted with him, and any other viable recovery source.

While the risk of employment fraud will always exist, you can take steps today to minimize and recover your losses.

[1]  ACFE, “The Staggering Cost of Fraud,” Report to the Nations on Occupational Fraud and Abuse, 2016 Global Fraud Study, http://www.acfe.com/rttn2016/docs/Staggering-Cost-of-Fraud-infographic.pdf.

[2]  John Verver, “The Top Five Areas to Monitor for Employee Fraud,” CFO (Nov. 6, 2013), http://ww2.cfo.com/accounting-tax/2013/11/top-five-areas-monitor-employee-fraud/.

Topics: Employment Fraud

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We represent companies in business litigation and consumer class actions, including matters involving business fraud and other tort and contract claims, consumer claims, failed business claims, investment/securities claims, government investigations and related claims, and real estate claims. We help clients limit risk, and we also add value by litigating strategically to reduce total legal spend.

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About David Hagopian

For more than 30 years, David G. Hagopian has successfully litigated for, as well as counseled and advised, employers and businesses throughout California. Hagopian defends employers in putative class, collective and representative (PAGA) actions alleging wage and hour violations, as well as in single and multiple plaintiff matters alleging wage and hour violations, wrongful termination, discrimination, harassment, retaliation, failure to accommodate, failure to engage in the interactive process, breach, defamation, and related employment torts. He also advises employers to comply with employment laws, regulations, and ordinances, audits wage and hour practices, prepares and revises employment handbooks, and recommends best employment practices.

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Jeffrey L. Sikkema has been handling general business litigation for over 35 years, representing clients in trials and litigation in federal and state courts throughout the country. He has represented major corporations and companies in virtually every sector of the economy, including financial services, technology and retail, in a wide variety of high stakes business lawsuits and disputes.

His broad range of business litigation experience includes privacy law, Bus. & Prof. Code §17200, PAGA, business torts and fraud, breach of contract, unfair competition, trade secrets, investment litigation, failed business deals, and other areas, as well as defending against consumer class actions.

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