Forensics Journal - Stevenson University 2010 | Page 37

FORENSICS JOURNAL

Book Review:

Fraud Exposed: What You Don’t Know Could Cost
Your Company Millions by Joseph W. Koletar
Marina Tapia
How can an organization mitigate its fraud risk exposure? Koletar
observed that managers, executives, and forensic professionals are
often unaware of effective compliance programs and as a result fail
to prevent and detect fraud. Koletar further contended that although
internal controls play a vital role in any organization large or small,
even when internal controls are in place, employees often decline to
use them and sometimes even override the controls. Indicative of this
observation, he noted that when an organization fails to implement
internal controls it gives an employee an opportunity to commit
fraud. Koletar confirmed that, “we should also be sensitive to the fact
that controls should be part of a larger plan for mitigating the risk
to the organization and not an end unto themselves” (p. 109). Most
importantly, Koletar emphasized that although compliance programs
and internal controls are available, internal and external forces (e.g.
internal and external relationships, the environment, and reputation
of the organization) often contribute to the ineffectiveness of such
programs.

ABSTRACT
In recent years, meaningful research by the Association of Certified
Fraud Examiners (ACFE) has revealed that occupational fraud continues to be a significant problem in most organizations. According
to the ACFE, the fraud problem, at $600 billion, is a problem that
cannot easily be identified or measured. A review of Fraud Exposed:
What You Don’t Know Could Cost Your Company Millions by Joseph
W. Koletar, Certified Fraud Examiner, confirmed that forensic
professionals often place greater emphasis on identifying the symptoms of fraud rather than identifying the causes of fraud. However,
empirical research suggests that one of several steps can be taken in
organizations to minimize or curtail the opportunity for fraud, such
as instituting a reporting mechanism, adopting a minimal cost fraud
prevention measure, segregating the duties of employees, or developing a personal profile of a suspect.
REVIEW

An important area Koletar failed to address in his book was segregation of an employee’s duties, often recognized as an essential part of
internal controls, despite the additional cost and effort it requires. The
employee in charge of recording transactions, for example, should be
prohibited from handling the authorization and the custody functions. Ultimately, when such segregation of duties is effectively instituted in an organization, coupled with an adequate system of internal
control and fraud policies, the risk of fraud is systematically reduced.

On December 11, 2008, vast numbers of individuals and organizations lost their investments as the result of Bernard Madoff’s $50
billion Ponzi scheme.1 Madoff, once the head of NASDAQ, a highly
admired and gifted “financier” of Wall Street, had it all, “a penthouse
apartment in Manhattan, shares in two private jets, the yacht moored
off the French Riviera” (Creswell & Thomas Jr., 2009, p. 1). How did
this fraudster achieve prominent status and power while manipulating
and depriving countless individuals and organizations of their investments? The answer is not readily apparent, but according to Creswell
& Thomas (2009), “an easy answer is that Mr. Madoff was a charlatan
of epic proportions, a greedy manipulator so hungry to accumulate
wealth that he did not care whom he hurt to get what he wanted” (p.
2). Without a doubt, fraud schemes of this magnitude lead the baffled
researcher to consider how an organization can mitigate its fraud risk
exposure, minimize its losses as a result of employee theft and avoid
becoming the next victim of fraud.

Employee theft as a source of occupational fraud was also explored
in the book. According to the ACFE’s 2008 Report to The Nation
on Occupational Fraud & Abuse compiled by several certified fraud
examiners, an updated figure of fraud losses indicated that, “organizations lose 7% of their annual revenues to fraud [and when] applied
to the projected 2008 United States gross domestic product, this 7%
figure translates to approximately $994 billion in fraud losses” (p.
4). While retrospectively, the old estimate in the 1996 Report to the
Nation indicated that, “over 80 percent of occupational frauds involve
asset misappropriation, cash being the target in 90 percent of the
incidents” (p. 34), Koletar notes that only a few organizations report
fraud incidents to law enforcement due to fear of bad publicity.

In his book entitled, Fraud Exposed: What You Don’t Know Could Cost
Your Company Millions, Joseph W. Koletar, Certified Fraud Examiner
(CFE), helps his readers understand the truth about occupational
fraud and abuse.2 Despite proactive participation in part by the
Association of Certified Fraud Examiners (ACFE) in finding viable
solutions for fraud problems, Koletar effectively argues that insufficient resources have been allocated to address the fraud problems
that organizations often encounter. Consequently, forensic professionals often fail to identify the “causes of fraud,” and inefficiently place
greater emphasis on “identifying the symptoms.” In discussing these
and other fraud related issues, Koletar noted, “that in order for the
field to continue to mature and develop, we still have a long way to
go” (p. 85). Of particular importance, Koletar urges forensic professionals to recognize that regardless of the size of an organization, the
base levels of fraud are predominantly the same.

While Koletar recognized that public beliefs and bad publicity could
damage an organization’s reputation, recent empirical data s ՝