Not Every Fraud is an "Enron"

Starting Out 

Mention fraud and the first thing that springs into most minds are the sensational cases – Enron, WorldCom, and recently, Conrad Black and Hollinger Inc. International. These are the cases that hit the nightly news and get the blaring headlines. While cases of such magnitude are arguably the most important because of the serious negative impact on thousands of lives, they are the minority.

What I like to call “the workingman’s (and workingwoman’s) fraud” is far more widespread and damaging than most people realize. Regrettably, many business owners and executives would tend to deny this. The workingman’s fraud takes place at a much lower level in the business food chain, and usually involves very low dollar amounts. Perhaps that’s why it often goes undetected, overlooked, or ignored. However, the cumulative effect is hard to ignore. For example, suppose an employee in a small- or mid-sized company cheats “just a little bit” on expense reports, say, $100 per report. If there are 20 more employees that do the same thing each month the cost to the company will amount to $25,200. Suddenly, this isn’t such a small harmless little fraud! Assuming a profit margin of 10 percent, the victim company will need to make an additional $252,000 in sales to make up for the losses on these frauds.

Here I’ll discuss several common fraud schemes. The first case describes a case of theft of cash, one of the most common.