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Monday: How Could This Happen?

Fraud can happen anywhere at any time. A person who commits fraud intentionally misrepresents the truth and purposely conceals facts to benefit themselves or those around them while causing harm to others. We all need to have a basic understanding of how fraud can happen and how a fraudster might try to hide it. Today we will look at:

  • How occupational fraud is committed, classified, and categorized.
  • How people conceal fraud.

Occupational fraud exists when an employee commits fraud and deceives the organization that employs them. At the top level, three primary categories of occupational fraud exist. View a complete Fraud Tree here.

Table 1: The three primary categories of fraud schemes and the classification system

Categories of Fraud

Classification of Fraud

Asset Misappropriation

Involves an employee stealing or misusing the employer’s resources, and it is the most common type of fraud. Asset misappropriation occurs in 86% of all fraud cases, with a median loss of $100,000.

Corruption

Includes offenses such as bribery, conflicts of interest, and extortion. Corruption happens in 50% of fraud cases, with a median loss of $150,000.

Financial Statement Fraud

The perpetrator intentionally causes a material misstatement or omission in financial statements. Although this is the least common, happening in 9% of all cases, it is the costliest, with a median loss of $593,000 per fraud.


Even with the shift toward digital payments, hybrid work environments, and continuous advancements in technology, the overall schemes fraudsters use remain consistent.

Concealing Fraud

Occupational fraud stems from an opportunity, through gaps or weaknesses in internal controls within a process. Knowing how fraudsters cover up fraud can help in designing controls for prevention. The top five concealment methods are:

  1. Create fraudulent physical documents.
  2. Alter physical documents.
  3. Create fraudulent electronic documents or files.
  4. Alter electronic documents or files.
  5. Destroy or withhold physical documents.

Short Video Clips

Review these videos for additional information on fraud and basic internal control concepts.

Table 2: Short video clips, video length, and video description

Video Sequence

Video Length

Video Link and Description of Video

Video 1.1

4:54

The Sample - What Is the GAO's Green Book?

Video 1.2

4:50

The Sample - What Are the Principles of Internal Control?

Video 1.3

1:30

What is Fraud Week?

Video 1.4

3:43

Types of Fraud


About ICA

Minnesota Management and Budget’s Internal Control and Accountability Unit (ICA) offers resources, training, and consultation for executive agencies to prioritize and document their internal control systems. The unit offers content for Fraud Awareness and Prevention Week for a tenth consecutive year, aligning with the Associated Certified Fraud Examiners (ACFE) annual International Fraud Awareness Week.

Resources: Occupational Fraud 2022: A Report to the Nations.

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