The 2024 ACFE Report to the Nations, Annotated with Wisecracks

In many episodes, Greg cites statistics from “A Report to the Nations,” the biennial report on occupational fraud, from the Association of Certified Fraud Examiners. As luck would have it, the most recent edition dropped in 2024, and so naturally, Caleb and Greg took the opportunity to discuss it.

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Sources:

Occupational Fraud 2024: A Report To The Nations [ACFE]

Creators & Guests

Host

Caleb Newquist

Writer l Content at @GustoHQ | Co-host @ohmyfraud | Founding editor @going_concern | Former @CCDedu prof | @JeffSymphony board member | Trying to pay attention.

Host

Greg Kyte, CPA

Mega-pastor of @comedychurch and the de facto worlds greatest accounting cartoonist.

What is Oh My Fraud?

"Oh My Fraud" is an irreverent podcast from CPA/comedian Greg Kyte and blogger/former CPA Caleb Newquist.

The two come together to unpack their favorite frauds and explore the circumstances, psychology, and interpersonal dynamics involved. They also fully indulge in victim-blaming the defrauded widows, orphans, infirm and feeble-minded—because who can resist?

If you fancy yourself a trusted advisor—or prefer your true crime with spreadsheets instead of corpses—listen to this show to learn what to watch out for to keep your clients, your firm, and even yourself safe.

There may be errors in spelling, grammar, and accuracy in this machine-generated transcript.

Caleb Newquist : Here's a quote from the report's introduction. Due to the nature of occupational fraud, each of the estimated 3.55 billion members of the global workforce has the potential to engage in this crime, as their employers entrust them with the organizational cash and assets in the ordinary course of business. Although only a small fraction of the workforce will ever commit occupational fraud. Myriad factors provide the pressures, opportunities, and rationalizations that motivate and enable perpetrators [00:00:30] to carry out their fraud schemes. These circumstances create the conditions for global fraud losses to reach trillions of dollars annually.

Greg Kyte: It's like the most complicated, nerdiest game of clue ever. Trillions of dollars are missing and there are only 3.55 billion suspects. I know it's the accountant in the server closet with a cash billing scheme.

Earmark CPE: If you'd like to earn CPE credit for listening to this episode, [00:01:00] visit earmark Cpcomm. Download the app, take a short quiz, and get your CPE certificate. Continuing education has never been so easy. And now on to the episode.

Caleb Newquist : This is on My Fraud, a true crime podcast where our stories involve moral decay rather than bodily decay. I'm Caleb Newquist.

Greg Kyte: And I'm Greg Kyte.

Caleb Newquist : Oh, Greg, it's lovely [00:01:30] to be back with you.

Greg Kyte: It is. I I'll tell you what. I'm so excited to be here. Uh, nine days out of total hip replacement surgery. This is. This is the dream, man I got. Yeah, got I got a nice opioid haze going on. There's going to be this is arguably going to be the best podcast we've ever recorded.

Caleb Newquist : Outstanding. All right. So then let's get you, uh, more, uh, doped up with, um, with a listener of you. What do you say?

Greg Kyte: Oh, I love it. Yes. I'm so I'm so on [00:02:00] board for a listener review.

Caleb Newquist : Okay, um, here we go. Apple podcast username niche says, quote, I'm not here for the CPE, but I'm absolutely here for the moral decay and none of the bodily decay. Nonviolent true crime is my jam. Five stars.

Greg Kyte: Nice, I love it. Thank you. Uh, niche. Did you call him him or her niche?

Caleb Newquist : I did.

Greg Kyte: I'm saying it's niche. Uh, but thanks niche for the for the review. You're [00:02:30] you're the first. You're the first time we got a listener review twofer where we got to use you in the intro and as the review, you wrote our intro for us. So yeah. And I know you and I, and I have a feeling that niche knew that they were they they knew what they were doing. They teed that up nicely.

Caleb Newquist : Indeed, if nonviolent true crime is also your jam, we'd love for you to leave us a review. And who knows, we might just read yours on an [00:03:00] upcoming episode, but probably just once.

Greg Kyte: Yeah, and if amazing keynote speakers are your jam, or if kickass in-house continuing education is your jam, uh, we do that. And who knows? Uh, we might even work clean.

Caleb Newquist : Uh, we know that we're pros. We do?

Greg Kyte: We are?

Caleb Newquist : Yeah. If you need us to work clean, we will work clean. For more info on pricing and availability, shoot us an email at oh My God at earmark CPE. Com. [00:03:30]

Greg Kyte: Cool. Now, Caleb, changing gears. My understanding from I believe it was just our very last episode is that as a child, you had dreams of becoming a professional baseball player. That is correct, right?

Caleb Newquist : Yes, yes I did I had I had these foolish dreams. Yes.

Greg Kyte: Well, so here's so here's the question. Were you one of those baseball fans who was like super into stats? Like, did you know your favorite player's stats?

Caleb Newquist : Yeah, at least I used to be. [00:04:00]

Greg Kyte: Yeah, he used to.

Caleb Newquist : I mean, I guess I was into stats. I think, you know, my peak interest in sports was probably like late 80s, early 90s. And so that's when Sportscenter was becoming very popular on ESPN. Oh yeah. And they and they reported on that stuff every single day. Right. And so I, I watched Sportscenter every day. And so I, so I guess I suppose I knew some of those player stats even like even the guys that I really liked, but I don't remember knowing all that stuff. Okay. [00:04:30]

Greg Kyte: So you didn't actively you didn't actively like track down stats. You were you were force fed them by the media machine. Totally.

Caleb Newquist : That's okay. Yes. Yeah, absolutely. Yeah.

Greg Kyte: Me personally, never a stats guy. Well, not never not the one time that I like that I create. This is the stupidest story. Have you ever heard of the game? It's this dumb game. I don't even know what type of game you would call it. It's this. It's. This game is called. [00:05:00] It's called Pass the Pigs. Have you ever heard of it? Of course you haven't. I'm sure. No, I'm sure there's one listener who's heard of Pass the Pig.

Caleb Newquist : I. I have totally heard of pass the pig. Please don't don't don't condescend. Yes, I have heard of pass the pigs. Yes.

Greg Kyte: Have you played pass the pigs?

Caleb Newquist : Yes, I believe I had. I've played it maybe a few times. I just remember I just remember that the pig or like dice and it's kind of like. And it's kind of like Yahtzee in a way. But there's. But there isn't. Like, there's not like six dice, there's only like two, there's [00:05:30] two dice or pigs and and and how they, how the pigs kind of like fall and how they fall onto the table. That's how you score points or something.

Greg Kyte: That's it. That's it. Yeah, yeah. So you got these two, these two little like rubber rubberized pig figurines. You roll them and like depending on like you said, depending on how they land. Like if they're both standing I think that's called a double trotter. And you get a certain number of points for getting that. But but and [00:06:00] it's one of those games where you can keep rolling the pigs as many times as you want, but you have to voluntarily stop before you pig out. And if I'm remembering correctly, pigging out is when both pigs land on their backs with their fore legs sticking straight up in the air. Okay, pretty sure that's a pig out.

Caleb Newquist : Sounds familiar? Yeah.

Greg Kyte: So it's one of those things where it's like in theory, statistically. And this is where I, this is where I got sucked in. Statistically, you should be able to throw those pigs at because because it was like the first one [00:06:30] to get to 100 points or 200 points or something like that wins. And so in theory, I kept thinking it's like, are or am I not winning just because I'm, I don't have enough bravery and I should just keep I should just keep chucking these, these pigs. And I was I was like hell bent on figuring out what the likelihood, like in any given game, how many rounds there typically are until someone hits that 100 points mark or whatever it is, and then trying to figure out what's the likelihood of just getting on a roll [00:07:00] and getting 100 points in one turn because I'm like, okay, so if you figure that out, then it's more likely that you can just keep rolling and rolling and rolling to win before the average number of turns for people who are being wusses, uh, and and just chickening out. So do you see what I'm saying? So I took I took copious statistics of, like, how many rolls until you will pig out, like, just. And it's just empirical. It's all just empirical data where you just have to roll and roll and roll to get. So, [00:07:30] like, where I'm rolling. Listen, I'm a fucking college student. I'm. I'm earning a college degree. And in my spare time, I'm not playing past the pigs. I'm just rolling these fucking pigs until I pig out and I'm doing it over and over again. I'm spending hours of my life devoted to to tracking this down until finally I was like the what the hell am I doing with my goddamn life? And I and [00:08:00] I, I hung up the pigs, man. That's when I hung up the pigs. So. Wow.

Caleb Newquist : Oh, man. Okay, so even though neither of us have been big on keeping stats or caring about them, the Association of Certified Fraud Examiners is huge. On taking stats, and every two years the ACF publishes its report to the nations on occupational fraud and abuse. The 2024 report just dropped, and on today's show we are going to dig into it. [00:08:30] This is the 13th edition of the Acf's report to the Nations. The first one came out in 1996. 1996 yes, 1996. Uh, you may have still been a Christian then, if I if I remember right.

Greg Kyte: Uh, let me let me do the math. Um, yes. All righty. Yes, you are correct, sir.

Caleb Newquist : Uh, Christian. [00:09:00] Greg, were you reading that first edition? What is the. No. Okay. No, no.

Greg Kyte: Gotcha. All right.

Caleb Newquist : So how long have you been actually reading.

Greg Kyte: It? Uh, this. Well, this, uh, since. Well, it's funny, I went back through my Google drive because every year I download the digital copy, and we'll have a link to that in the notes, and I and I, and I've kept it in my same Google Drive that I've had. Uh, and I went back and I found that I, the oldest copy that I have in there is from 2014. And that sounds about right. Oh, as that would [00:09:30] be when I first, because that's about the time I started doing presentations on fraud. Um, so yeah. So it would make sense that that I mean, that's where that's been my, that's been a key source of material for my fraud presentations. Uh, for as long as I've been doing fraud presentations. Right, right. So yeah. So, so if you think about it, so 2014 to 2024, that's that's a full decade of reports. But also if you're only.

Caleb Newquist : Five reports though.

Greg Kyte: It's actually 606 [00:10:00] okay. Yeah. Because because we're bookending the, the uh the decades. So yeah that's oh yeah. Reports. There you go. So a lot of reports and it's funny because I have locked in a lot of those stats into my brain where I have them out, even though they and it's funny, they change every report. They change a little bit. But not not nothing drastic. Right. They're they're pretty. They. Yeah. They're pretty well fairly consistent. But but it is interesting to see the little waivers in the, in the various things that they look at.

Caleb Newquist : Well [00:10:30] then shall we run down some key findings before we get to our favorite parts of the report.

Greg Kyte: Hit hit him up. Caleb Newquist.

Caleb Newquist : Okay, here's some of the high level stuff, starting with losses from fraud, from occupational fraud. The Cdfis estimate that organizations lose 5% of revenue to fraud each year. That works out to $5 trillion lost globally. That [00:11:00] is an unfathomable amount of money. Yeah. Here's how much. Here's how much $5 trillion is. If you had $5 trillion in $100 bills and started stacking them one on top of the other, after four hours, you give up because the amount of money you've already stacked still wouldn't be enough money to pay someone else to stack the rest of your $5 trillion of $100 bills.

Greg Kyte: You couldn't tell them, Sawyer, your job of stacking $5 trillion. [00:11:30] No way, no. No way. No. Yeah, no. You just give up because it's bullshit. Who would even who would even ask you to do that? That's a weird, weird task. Yeah, but but I love it when people are like, if you stacked $5 trillion of $100 bills, that would get you from here to Venus, man, you could get all the way to Venus with that much money. And. Yeah, and Venus.

Caleb Newquist : Is not a place you want to be. So not a.

Greg Kyte: Place I want to be. It's like.

Caleb Newquist : It's like literally it's literally hell on Earth in Venus. You do not want to be on that.

Greg Kyte: Well, not on Earth. [00:12:00] It's because it's Venus. It's on hell.

Caleb Newquist : On Venus.

Greg Kyte: Yeah, it's it literally hell on Venus. Uh, I do think it's funny. One of the things that's always stuck in my mind because that's that that stat has not changed, hasn't moved to. Well, sorry. The the part of that stat that hasn't changed for as long as I've been looking at these reports is the 5% of of revenue lost to fraud. And every year, what I think about because I it takes me back to my days of getting my, uh, my accounting degree, getting my MBA, and we would be looking at different [00:12:30] businesses and looking at their gross profit margins. And, and I know there's certain industries where their gross profit margins are not 5%. Like I'm thinking I'm thinking grocery stores like are, you know, that's that's that's the go to for thin margins is grocery stores because it's so competitive. And um, and you're going, okay, you're if your gross margins are 3%, uh, I hope that your that's I mean, obviously [00:13:00] that's after you've already taken into account the 5% that you lost to, to fraud, occupational fraud. And. Yeah, which is, which is crazy. Uh, that that's, that's what the estimation is for, for every I mean, the average business. So likely the business you work for is losing 5% of its revenue to fraud. Uh, right. I don't think my business is.

Caleb Newquist : Yeah. Oh. That's good. That's a relief.

Greg Kyte: It better not be. I'm the guy in charge of that shit. Yeah. No [00:13:30] kidding. So it shouldn't be losing. It shouldn't be losing 0% to fraud.

Caleb Newquist : Here's a few more stats. Median loss $145,000. Average loss 1.7 million. Now.

Greg Kyte: Are you going to talk about? Why? Which one's the better stat?

Caleb Newquist : Yes, I am. Now, if you did not take statistics or are not statistically inclined, here are here's a couple of definitions. The median first [00:14:00] is the, uh, number that's in the exact middle of the population okay. And the population is the entire body of data okay. Yeah. And so that means that 50% of the population is above that point and 50% is below it. Okay. So it's precisely in the middle. Yeah. Okay. And that is a very in this case it is a very good stat. And I'm going to explain that next. Remember [00:14:30] the average is 1.7 million. Oh yes. That seems like a lot right. That's way.

Greg Kyte: More. And it's it's way.

Caleb Newquist : More than $145,000. Right.

Greg Kyte: Because usually your median and your average are not that far off. These are ridiculously far off.

Caleb Newquist : Yes. And the reason, Greg Kite, that that is so is because they were probably a very small number of very, very, very large frauds. Right, right. Much larger than the median. And that drags that [00:15:00] average number way, way up. Yep. When in fact the median is a more representative representative number of what an actual occupational fraud is. Yeah. So so that all make.

Greg Kyte: Sense I think I think that makes perfect sense to me. Okay. So yep. Yeah I think well well explained okay.

Caleb Newquist : And if it still doesn't make any sense send us an email and then we will make fun of you. Okay. So finally the average fraud lasts 12 months before [00:15:30] it's detected. And remember the longer a fraud lasts the higher the losses, right? Make sense? Remember Rita Crundwell from episode three? If you've been with us a long time, she stole $53 million over the course of 22 years.

Greg Kyte: Yeah. If she if her if her fraud had only lasted 12 months, uh, she wouldn't have gotten, uh, nearly $53 million. She would have. Right. But much less than that. And and it is funny, again, like I was saying, there's a few of these stats that do vary. [00:16:00] Uh, not not a lot year to year, but but that one is actually one that I have seen more, uh, variation in is the average duration of the frauds because, uh, because I think it was I think I just looked at the 2022, uh, report to the nation. So just the, the last one that they published, and that was 18 months. So, um, so yeah, so we do see we do see some variation, but but basically the way that this ACF does this is every two years they ask their certified [00:16:30] fraud examiners to, to voluntarily send them data on the different cases that they investigated. So every two years they have a different basket of cases that they were that they were working on. So we're going to see a little bit a little different. So and actually so again it was funny. Well and it might have been actually you know what that might have been back from the 2014 one. Now that I think about it, it might have been the 2014 data that I was looking at where we saw 18 months. But also the funny thing was, is that the median loss was the exact same $145,000. [00:17:00]

Greg Kyte: So but again, we do see. But but that's just a weird coincidence. Usually we see some sort of change in in both of those numbers. Right. Um, in terms of the types of fraud that the report deals with, um, this report is specifically we we even talked about it in the title. It specifically deals with what's called occupational fraud, which means fraud that's committed by individuals against the organizations that employ them. So the ACF categorizes occupational [00:17:30] fraud into three broad categories. Uh, the vast majority of the cases that that we're looking at are asset misappropriation cases, like 87% of the cases are asset misappropriations. But the funny thing is asset misappropriation. If you just look at them as a cluster, they have the lowest median loss out of any of the three types of fraud. So it's the most common type of fraud, but it also has the lowest median loss and asset misappropriation. It's a fancy word basically for embezzlement. If people [00:18:00] steal money, if you steal money or if you steal stuff from your employer, that's asset misappropriation. So like the guys who were stealing the Pappy Van Winkle, uh, bourbon from the the Buffalo Trace distillery asset misappropriation. Um, again, Rita Crundwell, she was stealing money from the city of Dixon, Illinois. Asset misappropriation. The second type of occupational fraud is financial statement fraud. We talk a lot about that. Uh, that's your Enron's. That's your mini scribe's.

Greg Kyte: That's your, uh, Halliburton's, [00:18:30] allegedly. Uh, so, uh, financial statement fraud. They they have the highest median loss by far, which is why they get a lot of media attention. But they also just in terms of there's only like, I'm going to say it was in the teens. Of percentages of cases that were asset or sorry that were financial statement fraud cases. So it's kind of the opposite of of asset misappropriation. So asset misappropriation lots and lots of cases. Not that big of losses. Financial [00:19:00] statement fraud. Not that many cases but huge losses that are that are the biggest losses. And then the third type of occupational fraud is corruption. We're talking about bribes. We're talking about conflicts of interest, types of thing. And this one lands right in the middle in terms of frequency and, uh, losses. Uh, so it's it's, it's it was like I want to say about well, and it was funny. So if you're keeping track, I was saying it was like 80 something percent that was asset misappropriation in the teens. That was financial statement fraud. I think they [00:19:30] said like 48% of frauds had corruption. And if you're an accountant, you're going way that's way more than 100% and you're absolutely right. And that's because some of these cases involve multiple types of of fraud. Like you can have one case that was corruption and asset misappropriation. So um, so that's why the it it comes up to more than 100% on that.

Greg Kyte: And the other thing, just to keep in mind on this and this is funny, thinking back to what we were talking about with, um, grocery stores, [00:20:00] is that occupational fraud does not include a lot of types of fraud, like, for instance, shoplifting not not included in occupational fraud. So if we go back to to a grocery store, they have these very thin margins, but they also have to account that 5% of what they earn is going to be lost to their own employees stealing from them, and then they also have customers stealing from them. But a customer stealing from a company that's not that's not occupational fraud. That's [00:20:30] a different kind. So that's not covered here. Um, Ponzi schemes. That's not an occupational fraud because those people are not stealing from their employer. They're stealing from their investors. Tax fraud, not occupational fraud because people are stealing from the government or arguably from, uh, the, uh, pool of taxpayers in the country. Uh, they're not, uh, stealing from their employers. It also doesn't include, uh, cyber crimes like romance scams, uh, ransomware, because, again, [00:21:00] those aren't crimes against your employer. Unless unless you're catfishing your boss. And then that's just in this gray area. Uh, and I don't know if there's any actual, uh, cases of that that made its way into the Acf's report to the nation. But we can only hope for future, uh, future publications.

Caleb Newquist : Future episodes.

Greg Kyte: Yeah. And future episodes.

Caleb Newquist : Here's a, uh, here's here's some, uh, here's some more interesting case results that we'll just share. And, Greg, [00:21:30] I would like to get your, uh, maybe hot take on each of these. Are you, uh, are you ready?

Greg Kyte: I'm. I'm in for it. Okay. I'm here for it.

Caleb Newquist : 68% of our perpetrators in the report of the nation, 68% of the perpetrators were terminated, fired. I hate their.

Greg Kyte: Jobs, I hate it. That's my hot take. I hate it because. Why? Well, because we've already talked about this. Because you flip the stat around and it's ridiculous. That means that 32% of perpetrators were not terminated [00:22:00] from their fucking job. You stole from your boss and you got to keep your job. Bullshit, I hate it. That's the worst thing I've ever heard in my whole life.

Caleb Newquist : Terrible, terrible, terrible.

Greg Kyte: Although, although at the same time, you. I mean, we haven't gotten into it because I just don't know about our liability. But there was a fraud that happened at my current employer that I helped bring to light. And the powers that be did not want to fire the guy who had stolen hundreds of thousands, allegedly [00:22:30] stolen hundreds of thousands of dollars from the company. So I do have personal experience. Eventually, he was forced into retirement, which might be different from being terminated. So it happens. I've seen it. Okay, okay.

Caleb Newquist : 57%, 57% of the cases in the report were referred to law enforcement.

Greg Kyte: Again, flip that around. Well, do we have to flip? We don't have to flip that around. That's a that seems ridiculous. That seems just over [00:23:00] half.

Caleb Newquist : So that means just under half. We're not referred to law enforcement okay.

Greg Kyte: So here's so here's another real life example. So a person who's close to me who at uh, this person's uh, place of employment, there was a, there was a person who, uh, misappropriated about $60,000 worth of assets from the company and was just simply, very simply and quietly let go. And [00:23:30] nothing there was zero nothing was made of it at all. But the here's my reason why I believe that happened is because it is a nonprofit that accepts large donations from. From individuals, from community, you know, from from governmental entities, you know, that, that sort of thing. And if so, if if you involve law enforcement, that becomes public record and that becomes [00:24:00] something that the Salt Lake Tribune Tribune could write an article on, and then all of a sudden, all of your people who are happily giving you annual, large annual donations, go wait, what? These guys aren't keeping track of the money that I'm giving you, and it's just walking out the back door? Why do I bother giving money to these people? Then all of a sudden that dries up. So my guess is that for them, that was a very calculated decision, that going to law enforcement would be counterproductive to their overall the overall health of their organization, which [00:24:30] sucks, but so that person just got to keep 60,000 bucks that they stole and just had to go find another job.

Greg Kyte: So Caleb, we've mentioned this in past episodes, but historically many, many frauds are discovered via a tip, aka a whistleblower. And the brand new report to the nations is no different. It cites the statistic that 43% [00:25:00] of frauds were detected via tip uh, which by far is the. That's like the the runaway, uh, source for detection for frauds. Number two cited source. Uh, I would ask you to guess, but I know you already know the answer. Uh, it's, uh, internal audit. And the third, the third, the third most frequent is management review. Uh, it is interesting that internal audit is because I think I [00:25:30] think that's the second most with 14%. Uh, yes. Were were found were discovered through internal audit. And so it's a pretty big jump from 43% coming from Tips down to 14% for internal audit. But it also makes you go those internal auditors, man, they're earning their money by doing what they're doing. Yeah. But the other thing is do. Well actually you work at a much your day job is a much larger organization in mind. Do you know, does the company you work for have an internal audit department?

Caleb Newquist : No, [00:26:00] not in the way that you would think, not in the way in the context of this report. Like there aren't people sniffing around seeing to see if employees are stealing money. We have a lot of risk and compliance folks who are looking for red flags of our customers potentially doing shady, shady business.

Greg Kyte: Oh, interesting. Okay.

Caleb Newquist : Yeah, yeah, yeah.

Greg Kyte: Okay, I get that.

Caleb Newquist : That's that's where the, the people who are fraud experts at, uh, my [00:26:30] company, that's where they focus their efforts. Gotcha. Yeah. Gotcha.

Greg Kyte: So so I'm going to say no, there's not an internal which is and clearly I've got very small organization I work for, we have a total of three employees is all we've got and none of us are internal auditors. So I'm going to say in terms of all the companies that are affected by occupational fraud, a very, very small fraction of them have internal auditors. And the fact that 14% of frauds are discovered by them actually shows that that's a if smaller [00:27:00] organizations had the resources to employ internal auditors, I think that that might end up out outstripping tips as being the most effective means of detection. That's just a guess. I that's a speculation, but I think it's a valid speculation.

Caleb Newquist : Yeah, that's some that would be some like there would be some like weird wild extrapolation going on there but like yeah I yeah it's a it's not a bad hunch Greg. Yeah that's what I'm saying. Thanks.

Greg Kyte: Yeah. Here's another stat that that [00:27:30] again did not again the the spread changes from report to report. But the but the fun is always there for us and that is that uh that our favorite detection method to discuss is external auditors. And in this in this report, uh, external auditors were cited as, uh, detecting only 3% of fraud cases. But another category that they list for how frauds are detected is just simply [00:28:00] by accident. And 5% of the fraud cases were discovered detected by accident. So if you do the math, what that means is that fraudsters are 2% dumber than external auditors are good at their job, and that that's a that's a glaring statistic that somebody's just gonna go, oops, oops. I accidentally put the folder with all my fraud documents on my [00:28:30] boss's desk instead of his lunch. That's what happens, right? It's discovered by accident. Uh, and external auditors can't keep up with that. Uh, they can't.

Caleb Newquist : And these are, these are these are and these are these are professionals. These are people who are well-educated and, uh, the dumb dumb that leaves his his fraud files on an open copy machine is, uh.

Greg Kyte: Is right. Forgot [00:29:00] to pull it off the copy machine. I love that I forgot.

Caleb Newquist : To take it off the copier. That, uh, that is that is better. That is better at detecting fraud than external auditors. Exactly.

Greg Kyte: And and, I mean, I know I'm not wrong because Sarbanes-Oxley that that that, uh, required auditors to brainstorm how fraud might occur at the organization that they're auditing. And even with them trying to just go, here's a, here's a, you know, maybe there's maybe there's a [00:29:30] maybe an AP clerk is also a wizard and can teleport money out. If that's brainstorming that. We're just.

Caleb Newquist : Totally brainstorming.

Greg Kyte: Yeah, that that even they aren't catching as much fraud as the A. Clark's magic isn't working properly. Uh, here's a here's another interesting, uh, thing that that I noticed is that this is actually only the second report where they list, uh, quote, automated transaction slash data monitoring as a means by which fraud is detected. And [00:30:00] so which which to me, tell me if I'm, if you're, you're on board with me that that's that's I they're basically that's I. Yeah.

Caleb Newquist : Looking through.

Greg Kyte: Yeah some form of AI technology.

Caleb Newquist : Yeah. Some kind of technological advancement. Yeah.

Greg Kyte: Yeah. So but so like I said this is only the second report where that's listed and it's already caught up with external audit. It's just as effective as external audit. And it's brand new on, on the scene. Um, and, and I've got to assume. Well, [00:30:30] so whether or not what they're currently talking about in this report, in the last report is AI stuff, we know that there have been these just massive, uh, leaps and bounds in terms of what generative AI can do. And I've got to assume that if you feed, uh, one of these generative AI bots a bunch of information on how to spot possible fraud, that they're going to get really good at it. And the nice thing [00:31:00] is that the robots can actually look at every single transaction, not just a sample set of the transaction. And I think that there's a lot there that could potentially, in the future, make some huge changes in the data that we're seeing and in the amount of cases that are getting detected earlier and easier due to, due to technology. So. I think that's a pretty exciting, exciting thing.

Caleb Newquist : Exciting possibility, isn't it?

Greg Kyte: Yep. Oh, and, uh, hey, uh, since [00:31:30] we're bagging on external auditors, uh, the another thing that's fun in this, uh, this report is that the ASC, the ACF, uh, data, it really drilled down and showed that not only do external auditors detect a very small percentage of frauds, it also shows that they only detect very obvious frauds. Because remember how at the top of the show, uh, we said that the median loss due to fraud for this report was $145,000. [00:32:00] Well, the median loss on frauds detected by external auditors was $227,000. So there it's like the only cases that they're finding are the ones that are are so big you can't not find them. I mean, that's what it that's not that's an oversimplification. Right. And I apologize to the external auditors that listen to that. I don't think any still listen. We've offended them consistently. [00:32:30]

Caleb Newquist : We've, we've, we've we've alienated pretty much every external auditor. Right.

Greg Kyte: For, for for over 50 episodes. We've yeah, we've made them feel unwanted. So any that are still here are either brand new and thanks for listening to one episode or they just don't have any. They're robots and and at all, you know, like, uh, they're like, uh, what's it Sheldon from, uh, Big Bang Theory? And they just don't really have human emotion. And they, they go, yeah, we are [00:33:00] bad at that. And they accept it. But also just in the external auditors defense, their job isn't to detect fraud, right, Caleb? Every right. Right. Every engagement letter, it says right there that fraud could be happening and we're probably not going to find it. So don't expect us to do that part of our job. Uh. Yep.

Caleb Newquist : Although. Yeah, but I mean, if you leave. But but, uh, go back and listen [00:33:30] to our interview with Stephen Thomas, and he explains it very clearly. That is bullshit. Yeah. It's bullshit.

Greg Kyte: Yeah. And like.

Caleb Newquist : Yeah, bullshit.

Greg Kyte: And has been determined. So in a court of law, in a court of law. But here's, here's the last thing I want to talk about in terms of detection, uh, the least common way that fraud is detected. And this is this is the case, I think, in every single report that I've seen, uh, is by confession where the person, just their guilty conscience gets the best of them, and [00:34:00] they just barge into their boss's office weeping and going, I'm so sorry I'm such a bad person. I've been stealing $53 million. Not how Rita Crundwell happened, but it would have been. How nice would that have been if just eventually, her conscience made her give up everything? Uh, but, um, I do think, uh, it would be more than 1% of frauds detected by confession if companies would start doing what I've said for years. And that's [00:34:30] hire an in-house priest so that every Friday you've got fish in the cafeteria, you have a happy hour from 3:00 to 4:00, and there's a confession booth in the break room. I think if they did that, it would only be a couple more iterations of this report before confession surpassed external audit.

Caleb Newquist : All right, Greg Kite. Moving on to perpetrators. Yes, [00:35:00] a lot a lot of fun stuff in the report to the nations on perpetrators, for example. Operations, accounting, sales, customer service and executive management are the top five functions for occupational fraud in terms of frequency. So people in those departments yeah, committed frauds the most frequently. But an.

Greg Kyte: Accounting. Yeah. Oh accounting wasn't the top slot.

Caleb Newquist : It was not. It [00:35:30] was operations.

Greg Kyte: It's usually always accounting in that top slot. Come on.

Caleb Newquist : And actually sales was tied with accounting in this report.

Greg Kyte: Oh my gosh. We have we have slacked off. Come on pick up the pace accountants. We usually dominate this actually I'm going to say we're probably lower this year than we were two years ago because you know what was not in existence when the last report dropped? The Oh My Fraud podcast. Oh, so I'm going to say there [00:36:00] is definitely a causation cause there's a.

Caleb Newquist : There's a strong there's a strong correlation there.

Greg Kyte: I think it is so but probably good work in the world.

Caleb Newquist : Yeah. Yeah for sure. Yeah. Anyway, frauds committed by the board of directors or by executives in upper management had the biggest losses. I think that makes perfect sense by far though.

Greg Kyte: By I mean we're talking yeah, both of those groups. The median was like what? The median for the board was $800,000 and the median for executives [00:36:30] and upper management was 793,000. So basically both of them, $800,000 was about the median loss for both of those, when, again, we're talking median loss for all the frauds.

Caleb Newquist : 145.

Greg Kyte: 145. So right, that's where your losses are coming from.

Caleb Newquist : Yeah.

Greg Kyte: Yeah.

Caleb Newquist : Big losses. Your big ones. Yep. Cool. Um. So it comes to no surprise. It comes as no surprise that these are the biggest threats when it comes to fraud. Yeah.

Greg Kyte: Yeah, because because [00:37:00] management, they're the ones who can override the controls. They've got they've got the skills to do that. And I mean.

Caleb Newquist : Skills or access.

Greg Kyte: Power. Yeah. Yeah okay. Yeah. Access power more than skills. Yeah. Yeah. But probably I don't know.

Caleb Newquist : I don't know if skills have anything to do with it.

Greg Kyte: Yeah okay.

Caleb Newquist : They're just hammering through the fraud. Right.

Greg Kyte: Gotcha. Um, nothing. Nothing to see here.

Caleb Newquist : Right? Right. Yep. On the other hand, who do you think sucks at fraud?

Greg Kyte: Greg who?

Caleb Newquist : Customer service. [00:37:30] Yeah, yeah. According to the report, they commit 9% of all frauds. That puts them in the top five, but the median loss is only $55,000, which is, like, barely enough to even involve a CFA.

Greg Kyte: Right? Right. Yeah. Because you have to think the.

Caleb Newquist : Cfos, the CFOs on that case were like, oh, come on, come on. This is this is all I get.

Greg Kyte: My my feet, my fees are like a third of what you lost to this fraud. How are you how are you justifying [00:38:00] my paycheck for this?

Caleb Newquist : Yeah. Yeah. It just goes to show that, uh, customer service isn't what it used to be.

Greg Kyte: That's. That's so true. Yeah.

Caleb Newquist : Okay, let's talk about internal audit again, shall we? Please? According to the data, they commit less than 1% of frauds. So is it that they commit less fraud or do they just get caught less?

Greg Kyte: That I think that's a that is an interesting question because. Again. [00:38:30] Well, because it's one of those things where we've and we've talked about this on other episodes where I remember when I was it was probably in one of my first financial accounting classes where we had a section on fraud, and they started like the professor started explaining different types of fraud. And I was like going, oh my gosh, that's right. You could totally steal money doing that. I'd never even thought of that. And all of a sudden, like, I'm learning [00:39:00] how to. I mean, obviously you can't you can't know how to detect fraud if you don't know how fraud is perpetrated. But the other thing is, you're also learning how to perpetrate fraud. And if anybody's going to know the ins and outs, not just of how to steal money from a company, but also how to specifically steal money from this specific company, it's going to be internal audit. So that said, I'd like to say I mean, I guess going back to your question, do they do they [00:39:30] commit less frauds or do they just get caught less? I would like to say that they my guess is that they just commit less frauds, because their whole job is to make sure that stuff stops. And I think there's I think that kind of gets in your blood where you're like, you know, that a part, part of your whole self image is I'm the guy that stops fraud. So I'm not going to be obviously the guy who perpetrates the fraud. Right?

Caleb Newquist : Right.

Greg Kyte: So you very much have the white cowboy hat. Very much so in your like [00:40:00] I said, in your, your own self image.

Caleb Newquist : All right. Let's play a little game to see who's most likely to commit fraud.

Greg Kyte: Okay okay I love this I've done this I've done this in live fraud presentations before okay. Because because the in the report they like break down like the different. Yeah. We'll get into it. So so yeah. So so you and me we're going to play this game to see between Caleb and Greg. According to the profile of fraudster who's most likely to commit fraud.

Caleb Newquist : Okay, here we go. You're [00:40:30] most likely to commit fraud if one you're in the operations department.

Greg Kyte: Okay. Are you in the operations department at your. I am not okay. I, I would say I am not okay. There could be a case that I am. But I'm going to say that yeah there's other there's other better ways to describe my function at my day job. Okay. Other than operations.

Caleb Newquist : Uh. Your mail.

Greg Kyte: Yes I'm mail.

Caleb Newquist : Yes, yes, I.

Greg Kyte: Identify as mail. And I.

Caleb Newquist : Am too. Okay.

Greg Kyte: Yeah. Because men men commit.

Caleb Newquist : More vast.

Greg Kyte: Majority [00:41:00] of frauds.

Caleb Newquist : Mass. Yep. That's right.

Greg Kyte: And it is. It is interesting because the report breaks it down region by region throughout the world too. And and we do see that there's more gender equity in fraud in North America than there is in anywhere else in the world. So really, we're you know, I'm going to say that's. Weird progress. Is that gonna be weird? That's a.

Caleb Newquist : Feather. It's a feather in our fraud cap. There you.

Greg Kyte: Go. There you go.

Caleb Newquist : All right. Uh, you are 36 to 40 years old.

Greg Kyte: I [00:41:30] am not.

Caleb Newquist : Okay. Me neither. Okay. However, if you're over 60, which neither of us are. Nope. Um, you have the biggest frauds. The median fraud for perpetrators over 60 is 675,000. Ooh, boy.

Greg Kyte: I love that. That makes me. I don't know why that makes me so happy that grandpa's, like, stealing all the money, but. Right. It shouldn't. It should make me angry. But.

Caleb Newquist : So, no, no early bird dinners for those fraudsters. Those guys are going. Those guys are eating at a decent hour, [00:42:00] right? Right. Yeah.

Greg Kyte: 730 earliest.

Caleb Newquist : Yeah.

Greg Kyte: Right. If you're pulling in 700 and $675,000 in fraud money.

Caleb Newquist : Okay. Um. You okay? Yep. Uh, most likely to commit fraud if you have a university degree, but not a post-graduate degree.

Greg Kyte: Gotcha. So I that would not be me because I have my MBA.

Caleb Newquist : I, I have a post-graduate degree as well. So that's not me.

Greg Kyte: So we're we're tracking. We're right. We're neck and neck. [00:42:30]

Caleb Newquist : I think we are I think we each have one each. Yeah. Yeah.

Greg Kyte: Which because we're dudes.

Caleb Newquist : Dudes. Yeah. Uh, again the post-graduate fraudsters have the biggest frauds though. The ones that do commit them. But. Okay. Um, because they use, you know, stats and psychology and quantum mechanics to, you know, do all that stuff, right? Yeah. Of course. All right. Uh, you are a manager, not me.

Greg Kyte: I am, I absolutely am.

Caleb Newquist : Okay, okay, so you're a manager?

Greg Kyte: I'm a manager.

Caleb Newquist : Okay. [00:43:00] Strike two. Okay, you're most likely to commit fraud if you've been working at your current job for 1 to 5 years. I am beyond five years. Great.

Greg Kyte: You are beyond five years. I am also well beyond five years. I'm 15 now. Okay, where I'm at okay.

Caleb Newquist : More likely to commit fraud if you have no friends. In other words, most frauds are committed by just one person rather than a group of people. Um.

Greg Kyte: I mean, I'm going to say.

Caleb Newquist : I have I have some friends. I think I'm fine. [00:43:30]

Greg Kyte: I, I would I'm gonna get I'm gonna well here because here's the thing I yeah, I guess the way I interpret that is like do if, if I do I have like ride or die people at work where it's like.

Caleb Newquist : Right. Gotcha.

Greg Kyte: That's how that's how I interpret it. And I go, I got I got friends, but I don't have like help me bury a body friends.

Caleb Newquist : Yeah yeah yeah yeah yeah.

Greg Kyte: Right. So I think I so I think, I think to me I'd have to give myself the point there. [00:44:00] Okay. Because. Yeah. Because the, because like I said, the vast majority of, of these frauds are committed by a solo, uh, just by an individual working alone. Yeah. So okay. But but again, what another interesting fact is that groups that the biggest, the biggest takes are, are from groups of three or more people colluding for the fraud. But then you've got to look at a per capita take. And it's once you start getting, you know, five people involved, is it worth it? [00:44:30]

Caleb Newquist : No. Because someone's gonna squeal.

Greg Kyte: Someone's gonna squeal. Yeah, totally. That's probably true. And you're cut your cuts less than if you did it by yourself. So why exactly? You know why. Outsource. That's right. That's so horrible. Like, we're we're now, like, going, listen, if you're gonna do this, don't be a, don't be a dipshit. Dude, that's not that's not really our intent.

Caleb Newquist : No, that's not this show. All right. Finally, finally, you're most likely to commit fraud if you've never been charged or convicted of a fraud. 86% of perpetrators [00:45:00] have never been charged or convicted of fraud. That means 14% have been charged or convicted with fraud. And what the hell is that about? I mean, right, and 9% of those 14% are working in customer service, but who's giving is that right? Does that do those numbers work?

Greg Kyte: I think I mean, customer service is shitty at their at at committing fraud. So likely they've been, uh, convicted of fraud. [00:45:30] Right. And they're back. Right. That's. Yeah. I mean that's that's my that's my guess.

Caleb Newquist : That's your read on it. Yeah.

Greg Kyte: Yeah. Anyway, that.

Caleb Newquist : That. Okay. Uh, I have never been charged or convicted of fraud. Uh, so I actually only, uh, I believe I only check off one out of eight of these, uh, most likely to commit. You're clean. You're clean. Yeah, I think I think, I think I think. Get out of here. I think I'm looking good. And you, how many did you check off? I checked.

Greg Kyte: Off three.

Caleb Newquist : I'm three. So still three out of eight's. Not very many.

Greg Kyte: It's [00:46:00] it's not, it's not, it's again, it's like I said, I've done this in live, uh, live fraud sessions before. Yeah. And I have the whole audience going along and it's it's awesome when. Because you'll have somebody there who's like, I'm eight out of eight. This is like that guy. He fire him. Now who's with him? Watch watch out for that. Fire that guy. Right. He shouldn't don't don't let him back in in your in your office. Uh, so next Caleb, we're going to talk about red flags. This is probably my favorite thing, [00:46:30] uh, with fraud. Yeah. Because yeah, I don't know why. It just, uh, perennially excites me. And there's a lot of red flags that they list. So we're going to go through these pretty fast. Um, but also, please, as we go through, as we burn through these, uh, give, give commentary as you have it. Okay. Yeah.

Caleb Newquist : Yeah. Cool. Well, let's if, if you're, if you're playing at home. Oh, yeah. Yeah.

Greg Kyte: Let's do this. Yeah. Let's let's keep track. Um, so the first one, by far the biggest red flag [00:47:00] is living beyond your means. We see that all the time. We saw that with Nathan Mueller. We saw that with, you know, with, uh, with the wine, the guy who forged fraudulent with the wine. Oh.

Caleb Newquist : Rudy Kurniawan.

Greg Kyte: Yeah, yeah, yeah. All I mean, this is we see it as a matter of fact, it's so prominent that people are living beyond their means, even, you know, uh, Rita Crundwell to talk about her again is all these people are living beyond their means that the fruitcake fraud guy was going on private jet trips with his friends, but he's still, [00:47:30] for some reason, won't let go of his $40,000 a year comptroller job at a bakery. So, um, so, yeah, so we see that. We see that all the time. That is, uh, by far the biggest red flag. Caleb, do you feel like you live beyond your means?

Caleb Newquist : Uh, no, I don't.

Greg Kyte: Yeah, I don't either, I think. Yeah, yeah, I think I think everything lines up pretty good with me. The second one is financial difficulties. 27% of fraudsters exhibit that behavior. Red flag makes sense to. If you think about the fraud triangle. Is that one [00:48:00] of those sides of the fraud triangle is pressure. So if you have financial difficulties, that's going to be one of the things that's going to do that financial difficulties. Um, uh, the third one is unusually close association with a vendor or uh, a customer. So like, uh, do you have a, do you have like a, a sister or a brother who's a vendor or a customer for your day job?

Caleb Newquist : No, I do not.

Greg Kyte: Yeah, I don't either. I don't I don't have any really. But again, that's where that's where a lot of like the, uh, the corruption [00:48:30] stuff comes in is if you have two, like if the person who is providing your office supplies is happens to be your wife, then you might be getting overbilled for office supplies. Sure. You know, that kind of thing. The next one, uh, control issues, uh, unwillingness to share duties. I hate delegating. Uh, so I don't know if I would say I'm a controlling person, but I definitely don't like delegating stuff to other people. So [00:49:00] I would say unwilling, uh, to, uh, share duties. That's, that's a, that's a thing. I, I feel like the way I do it is the way that I like to do it and the way I feel like it needs to be done. And and if I hand it off to somebody else, it's not gonna be done the way I like it. So I'm probably gonna give myself that one. So I got, I got my first got my next one. We've talked about this one a lot. It feels like on uh on podcast. The next one is irritability suspiciousness or defensiveness. That's one category. [00:49:30] Yes. Uh. And and I, I go if I, if I still had a Tinder profile and I tried to describe myself in three words, it would be irritable, suspicious, and defensive. So, uh, that's so, so yeah, I'm going to give myself that one. Yeah.

Caleb Newquist : Three for three.

Greg Kyte: Yeah. Uh, the, uh, the next one, uh, divorce or family problems. And I have been divorced, but I think but the way I read this is like currently [00:50:00] going through a divorce, right? That's that's how I read this. But I also do. And I get what they're saying, like having family problems. But again, I do, just being the nitpicky smartass that I am, I go, I go. So are you saying that it's a red flag? If your family has any problem? Like what? Family has no problems. So I guess everybody has this red flag, you know? So if smart ass, smart ass isn't a that's not one of the red flags.

Caleb Newquist : Well, I'd have to say. I'd have to say if [00:50:30] you have family problems, then, uh, irritability and defensiveness are like an auto check, right? Right, right. I mean, there's not even there's not even there's not even a question, so.

Greg Kyte: Right. Okay. Next one is addiction problems. Are you addicted to anything right now? Uh, Caleb.

Caleb Newquist : Uh, maybe Peaky Blinders, but okay. Okay. No. Did that not land wrong?

Greg Kyte: Uh, I mean, my my my three addictions are, uh, Diet Coke, internet porn and opioids. So I, [00:51:00] I think, well, I mean, I'm starting like I said, I had hip surgery like, less than two weeks ago. So you're just.

Caleb Newquist : Getting into the.

Greg Kyte: Opioid? I'm. Yeah, I'm, I'm, I'm developing the opioid thing, but the other ones are well established.

Caleb Newquist : Yeah I gotcha.

Greg Kyte: Okay. So but I but again I don't I don't know if those are real addictions.

Caleb Newquist : Diet Coke. Yeah yeah.

Greg Kyte: Yeah. Let's see uh complained about inadequate pay.

Caleb Newquist : Well. Like recently?

Greg Kyte: Yes. Ever [00:51:30] or ever. I think that's ever. Oh. But probably the more recently the the better. The more the redder the flag, the more recent the complaint.

Caleb Newquist : Sure sure sure. Yeah. Of course. Yeah.

Greg Kyte: Every. So. Okay. So we both got that one. Yeah.

Caleb Newquist : And again I think this would go with irritability and defensiveness.

Greg Kyte: Exactly. Well and I like it too because this is one that you could use it like a company could use against somebody where it's like, hey, yeah. Hey, sorry. I don't mean to be a pain in the butt, but I was just wondering. It's been a few years since I've gotten a raise, and I was [00:52:00] just wondering if. And they'd be like, get the fuck out of here. You're stealing money from our company. Yeah. You're fired. Red flag. Um, let's see, what's the next one? This is a new red flag. This, that again, this is only the second report they've had. This is excessive internet browsing. Uh, yeah. And that's a red flag. And I'm gonna go. Everybody. Yeah, every. Everyone with a smartphone. It browses the internet. Except what's the what? What's the opposite of excessive? Like, [00:52:30] only you're only browsing the internet enough to survive. What the. Right. What is it? What does that mean?

Caleb Newquist : Adequate. Adequate. Adequate. Internet browsing. Adequate.

Greg Kyte: So so again, if you're if you're if you're only on the internet to order food to be delivered through a food delivery service, then you're good. Other than that, it's excessive.

Caleb Newquist : And and even that seems excessive, to be honest.

Greg Kyte: If you're getting it delivered. I mean, I mean, that seems like you're living beyond your means [00:53:00] too. Yeah. So yes. Uh, but the interesting thing, and I always love to point this out this year, what did they say in this year's, uh, fraud? In this year's, uh, report, it says that 16% of fraudsters exhibit no behavioral red flags. And that seems that's always seemed ridiculous to me. Where I go, how could anyone not exhibit at least one of these red flags? But as you know, we also. What was it? In episode 46, we looked at, uh, the municipal [00:53:30] tax collector in Maine, Claudia Viles, who who was a goddamn saint, but also stole over a half $1 million from her city. Uh, and that was that was the thing that that kind of blew my mind is I go, okay, we found a case where she did not exhibit any of the behavioral red flags, so we found 116%. I think you just didn't know the person well enough. They exhibited a lot of these red flags. You just weren't tight enough to be able to see all the social isolation or instability [00:54:00] in their life circumstances. And listen, there's a there are several other red flags that we did not cover, uh, as we were going through this. But again, we got a link to the report in the show notes. Go check it out. You can see the entire list there and peruse it at your leisure.

Caleb Newquist : Okay, Greg, uh, controls. We're going to talk about controls. Yep. And their role in not finding fraud. [00:54:30] Right. Or their role in all of this, I suppose. What in whatever way.

Greg Kyte: If there's if there's something we talk about almost every episode, it's controls that we're lacking. Yeah. So yeah.

Caleb Newquist : Yeah. So here we go. Uh, first one, 82% of, uh, victim organizations modified their anti-fraud controls after the fraud. And, uh, why? This isn't 100%. I don't have any fucking idea, but [00:55:00] a good point. Good point, but nearly 20%. Just took a look at what happened, took a look at how their business was being run and go, nah, we're good. Right?

Greg Kyte: Our house got robbed. Why? I left the front door unlocked. Ah, but I fucking hate carrying a key. So I guess that's just what happens.

Caleb Newquist : Yeah, I guess. Yep. Yeah, yeah. You win some, you lose some, you know.

Greg Kyte: Right. Right.

Caleb Newquist : Um. All right. And one other one, uh, just off the top here before we get [00:55:30] into some of the other stuff, 27% of modifications are expected to be extremely effective. And I guess I find that odd because it seems low. Like, are they just you? Do you feel like the people that, you know, were they sandbagging? They're just like, uh, I don't want to say that they're definitely going to work, because that means I'm just going to jinx myself and we're going to get fucking ripped off again. Like, I just, I it just feels like, wouldn't you try to fix controls or wouldn't you try to implement controls where you're just like, if [00:56:00] we do this, no one will ever be able to commit fraud again or like, just, I don't know, just a little bit better than 27%, I guess, for extremely effective controls.

Greg Kyte: Yeah. No, no, I'm right there with you. If, if, if some sort of fraud were perpetrated against your company and you discovered it, you would also figure out how they were able to perpetrate the fraud. And then you should be able to plug that hole in your internal controls. And plugging that hole would be extremely [00:56:30] effective to prevent that fraud from happening again. So yeah, that's kind of weird where it's like, I mean, again, it's like, oh my gosh, you know, people, people were stealing all of this cash from our company because we just left it out on top of our desks. Uh, so I guess what we could do is we could have a meeting and tell people, hey, stop stealing all that cash. And then I don't know if it's gonna work, but it's. [00:57:00] But something's better than nothing, right, guys? That sounds like what happened there.

Caleb Newquist : All right, now, the most effective anti-fraud controls were present at a small number of the victim organizations, because there are a lot more small organizations who can't afford to implement controls than there are large organizations that can afford to implement them. In other words, the best controls can only really be afforded by big companies. Is that essentially what that means? That's essentially what that means. Yeah, [00:57:30] yeah. I mean.

Greg Kyte: If you've got if I mean again, that's my, my company, we, we have very minimal separation of duties at our company because we only have four we have four employees, and we got one owner who's kind of fulfills an oversight role. And so we don't the only way to have better internal control, better separation of duties, is we'd have to hire someone else just to be able to implement those internal controls. So that's. Yeah. So smaller companies just don't have [00:58:00] the resources whether that's financial or personnel, which again, I guess personnel boils down to financial. Uh, so yeah, that makes sense to me.

Caleb Newquist : Okay. The weakest anti-fraud controls for example, code of conduct external audit were present at nearly all of the organizations. So really high percentage of of those organizations had those two things. Right. Uh, but also, let's be real, external audit is not an internal control. [00:58:30] Like that's a weird kind of like classification for something like that, right? So I mean, it's maybe it's semantics, but it is it is definitely annoying that they, they call it that. Right? Uh, yes. Because agreed by definition an external audit. Yep. Yep. Right. Um, one of the more effective controls is fraud training. It's counterintuitive that people who are trained in fraud will be worse at it. But really, this is very [00:59:00] important. It's important that people are explicitly told what purchases on their company expense card would be considered fraud. If a janitorial vendor says that they'll clean your house for free, if you hire them to clean your offices, then that's corruption, right?

Greg Kyte: Yeah. And and I do think and it's funny because a lot of the. Stuff seems. Well, I don't know, maybe the the janitorial thing doesn't seem so obvious, but I it reminds me of my friend who this was back when I was [00:59:30] still a math teacher. Uh, she had graduated about the same time I did. And she she was an accountant. She got a job at Ernst and Young, and she was, uh, she was in the Seattle branch. And one of her audit clients was, uh, was. Ray. I think I've told you this story before. Yes. And once I found out about that, I was going. That must be awesome. I bet they they give you some sweet swag for being the auditor. And she was, like, so offended. She was like, oh my heavens, no. We cannot accept any [01:00:00] gifts from a from a audit engagement client. And I was like, oh, I didn't mean to, but but me, I had no idea that that would somehow be compromising. Right. But obviously it is, uh, now that I'm where I'm at now. So but it's stuff like that that, you know, the different nuance of that, that you do need to train people because a lot of people just don't understand that you can't, you know, there's certain things that you cannot do at the company.

Greg Kyte: And like, for instance, like our, [01:00:30] our, my company, a lot of what we do is we maintain it's because. So I'm an in-house CPA for a group of medical office buildings. One of the big functions that I do not do is maintenance. But we have we have like a work truck. And so one of the things that that we that's part of our policy and that we do tell people is it's okay for us as employees to borrow the work truck if we need a truck for the weekend. But there's obviously a lot of companies where it's like, oh [01:01:00] yeah, you have keys to the work truck, but you better not be hauling, you know, materials for your shed that you're building on the weekend with that work truck. But people might be like, what are you talking about? It's that's I have it. Why wouldn't I, you know, so you do you do have to train people or else they're not going to know.

Caleb Newquist : Right, right. Another weird internal control listed is the existence of an anti-fraud policy. So. It's weird because no company has a pro [01:01:30] fraud policy, right?

Greg Kyte: Right? Right.

Caleb Newquist : Yeah. Right. Yeah. Nobody during employee onboarding says, all right, if you don't at least steal a stapler in your first month, then you're not Arthur Andersen material. Nobody's saying that.

Greg Kyte: Right? Okay. Not even back when Arthur Andersen was around. Nobody was.

Caleb Newquist : Right.

Greg Kyte: Saying that at Arthur Andersen. Yeah, but.

Caleb Newquist : Really, this is this is the tone of the top stuff, right? So there's a lot of crossover between anti-fraud policy and fraud training, but the policy [01:02:00] side of it is basically stating that the organization has zero tolerance for fraud, and anyone who commits fraud will be fired and prosecuted and booed as they leave the office building, or when they're seen in public in the future.

Greg Kyte: Right. Which right. That'd be a great policy, is that we will. When when I do see you at the rollers at classic skating roller skating rink, I every time I do lap you, I'll just be like, boo!

Caleb Newquist : Yeah, yeah, I'll hiss at you.

Greg Kyte: Yeah. That's good. I mean, it's, you know, justice.

Caleb Newquist : That's [01:02:30] justice for sure. For sure. And I love this. When asked to identify the main internal control weakness for each of the frauds in the 2024 report, to the nation's 32% just said lack of internal controls.

Greg Kyte: Right. What's the weakness in internal controls? Yeah, we don't have those there.

Caleb Newquist : We don't have them. Yeah.

Greg Kyte: Yeah. But that's but that's the big.

Caleb Newquist : That's the big. That's the big weakness. Yeah.

Greg Kyte: But I'm not surprised by that because. So I mean how many how many of these episodes do we just tend to go. Yeah of course they were going to steal. [01:03:00] There was zero internal controls right.

Caleb Newquist : Yeah. Yeah. Or they were or they or they were just it's like uh yeah, we, we have that, but we don't do it. Right?

Greg Kyte: Right. Exactly. We worked around it. We worked our way around those. Yeah. That was cute. That was cute. What you tried to do there. But we figured out a way.

Caleb Newquist : Yeah, but what I love even more is that in 8% of the cases, the main internal control weakness was, quote, tone at the top. But earlier in the report, they're saying that 19% of frauds [01:03:30] were perpetrated by owners or executives. So unless I'm misunderstanding this, that means that in 11% of frauds, an owner or executive commits the fraud. But the tone at the top was fine.

Greg Kyte: Right, right. They are. The tone at the top is the owners and the executives. But they're the ones, right? So. So yeah, but they committed the fraud. It's only a saying 8% of frauds had bad tone at the top, but 19% of the frauds were committed by the people at the top. [01:04:00] So 11% of your frauds, huh?

Caleb Newquist : Yeah. We have zero tolerance for the frauds that are committed by anyone but us.

Greg Kyte: Right? Right. Yeah. That's it. Yeah, that's a weird that's a weird conflict in those stats for sure.

Caleb Newquist : All right. Greg, uh, did we learn anything?

Greg Kyte: Yep. Well, that's it for this episode. And remember, if you commit occupational fraud [01:04:30] three times, statistically, you're only going to get fired twice.

Caleb Newquist : And also, remember, external audits aren't designed to detect fraud. But no one gives a shit. Find the fraud.

Greg Kyte: Do your fucking job. It is your job. But please keep listening to our podcast. Uh, and if you want to drop us a line, please send us an email. If you want to send us an angry email about how you're you're really a champion of of everything that is good and right as an external auditor. [01:05:00] Uh, send us your complaints in email form to oh, my fraud at earmarks. Com and, Caleb, where can people find you? Out there in the wild wilderness that is the internet.

Caleb Newquist : Oh. Linkedin backslash. Backslash. Linkedin. Not backslash. All the slashes. I'm on LinkedIn.

Greg Kyte: I'm on LinkedIn, probably. Caleb Newquist.

Caleb Newquist : Caleb Newquist. Yeah.

Greg Kyte: Yep. Good.

Caleb Newquist : Greg kite I.

Greg Kyte: Also on LinkedIn I am remiss it's probably been. Excuse me? At least nine days [01:05:30] since I've checked my LinkedIn profile. I, uh, something about some about a hip replacement has not made it, uh, something that I've done, which is weird. You'd think I'd have more time for excessive internet browsing with being laid up with a hip replacement, but I have not. But that's that's probably the best way to find me. Send me a DM on LinkedIn. I'm Greg Kite, CPA. Look for the bald guy with a beard and glasses that says Greg Kite, CPA. And you found me.

Caleb Newquist : Oh My [01:06:00] Friend is written by Greg Kite and myself, our producer Zach Frank. Great review and subscribe to the show wherever you listen to podcasts. If you listen on earmark, you could get some CPE. Nice. That'd be all right.

Greg Kyte: It's awesome.

Caleb Newquist : Join us next time for more average swindlers and scams from stories that will make you say, oh my friend, my fraud.