Chapter 17

Quantifying Fraud

Impact! Yes, we are using the term impact and not effect or affect, not because we don't know when to use which of the latter words, but because the cost of fraud is a force-like blow on an organization in both monetary and nonmonetary terms. The focus of this chapter is how to incorporate the fraud conversion point of the fraud scenario into the fraud audit. The following discussion will not consider the intent of the person committing the fraudulent act or attempt to establish a responsible party. Also, there won't be any legal treatise on how to present loss calculations in an expert witness report. No “what,” “where,” or “who,” just “how,” as in how to link the economic gain to the employee and how to calculate the loss from a fraud scenario. Think of it as the time you went to the auto repair shop for just an oil change and tire rotation. An hour later, the manager comes to you and proceeds to give you a seemingly endless list of things that are wrong. Finally, unable to hear anymore, you say: “Just how much is this going to cost me?”

In looking at the primary classifications of fraud from Chapter 3, asset misappropriation and corruption schemes result in dollar loss amounts that can be calculated, while with avoidance strategies there are the fines or penalties that can be identified with the fraud. With the other primary classifications, it is more difficult to calculate an actual number. For example, what would be the dollar impact associated ...

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