Corporate Fraud Handbook: Prevention and Detection By Joseph T. Wells John Wiley & Sons, Inc., 2004; ISBN: 0-471-49121-7; 440 pages, $65
Joseph T. Wells is the most prominent and prolific writer, speaker, and researcher on fraud-related matters. A former FBI agent and a criminologist, he founded the Association of Certified Fraud Examiners (ACFE) in 1988 and serves as its chairman. Many of the ACFE's nearly 30,000 members worldwide are credited, either broadly or by name, with their contributions to this volume.
The book begins with a legal definition of fraud and the range of employee abuses, details the "relatively little" research done in occupational fraud and abuse during the past 65 years, and overviews the ACFE's 2004 Report to the Nation on Occupational Fraud and Abuse. This survey is the third in a series initiated in 1996. The report measured the cost of fraud and abuse and responses to perpetrators, and also provided data on the perpetrators' positions, genders, ages, education, tenure, and criminal histories, as well as the sizes and types of victimized organizations. It also reveals how frauds were first detected.
In the 2004 survey, participants were asked, based upon their personal experience and general knowledge, what they believed a typical entity loses to fraud and abuse. Their median response, which the author states is consistent with the two prior surveys, was 6% of gross revenues. Applying this percentage to the U.S. Gross Domestic Product of $10 trillion results in the startling figure of $600 billion in losses.
The book presents a ranking by CFEs of the effectiveness of fraud prevention methods, along with a "fraud tree" that classifies and categorizes the 2,500-plus fraud cases disclosed by the ACFE's three surveys. Three major categories of occupational fraud are identified and quantified to arrive at the most common methods of fraud and the vulnerabilities that permit frauds to succeed.
The first category, asset misappropriations, includes theft or misuse of an entity's assets through larceny, skimming, and fraudulent cash disbursements, as well as misuse and larceny as they apply to inventory and other assets. Wells defines, clearly explains, and illustrates each of what might be termed the branches and leaves on the fraud tree. He supplies excellent case studies and uses the ACFE 2004 survey data as they relate to the misappropriation classifications. Case studies and report data are similarly used for the other major categories.
Wells defines corruption, the second major category, as employees wrongfully using "their influence in a business transaction to benefit themselves or another person, contrary to their duty to their …