Institutional fraud takes a $2.4 billion bite out of Puerto Rico’s economy, representing at least 3.5% of gross revenue, according to the “Portrait of Fraud in Puerto Rico 2020” study revealed by the Puerto Rico Society of CPAs.
“The term occupational fraud can be defined as those acts committed by employees with the objective of obtaining economic benefits through the misuse or illegal appropriation of organizational resources and the manipulation of financial statements,” the organization’s President David E. González-Montalvo said.
“This study has the fundamental purpose of gathering information on the incidence of occupational fraud in the government and in private companies, the cost related to fraudulent acts and the measures that could prevent these unfortunate incidents,” he said, during a presentation of the study that was supported by the Association of Certified Fraud Examiners, the Institute of Certified Internal Auditors, and the Puerto Rico Bar Association.
A total of 44 people participated in this study, who had experienced and participated in the investigation of fraudulent incidents in Puerto Rico in the past two years (from January 2018 to December 2019) and who said the investigation had been finalized and the perpetrator had been identified. Also, 22 fraud experts and between 167 and 192 participants took part in several surveys.
The study revealed that companies with less than $5 million in sales reported a greater loss than companies with higher sales.
“Fraud is a problem that affects small, medium and large companies. The study provides a portrait or photograph of this criminal activity on the island,” said Eduardo González-Green, chairman of Portrait of Fraud 2020 Committee.
“Occupational fraud schemes can be as simple taking notebooks, printer inks and other office supplies, to complex schemes to improve operational results, or hide obligations in financial statements and others,” he said, adding that biggest asset taken is cash.
“The creation of fraudulent physical documents and the alteration of documents were the main schemes, so we recommend boosting intervention processes [which includes three-way matching], among other issues,” González-Green said.
The study also revealed that fraud detection is learned from confidences in 62% of the cases, and by internal audits in 33% of the cases. Only 65% of the companies and entities surveyed have a formal system for receiving complaints. Also, unlike previous studies, the number of female perpetrators increased.
The Puerto Rico Society of CPAs presented nine recommendations based on the findings of the study, to fight government corruption. Of those, three stand out: increasing resources for auditing bodies; promoting the existence of an open and digital government structure; and, promoting the participation, monitoring and social oversight in public management.
“The first step to preventing fraud is recognizing that the risk exists and that you need to commit to fighting it. To face it, it is necessary to strengthen the personnel recruitment process, attend training sessions, read about the subject and use the available resources to avoid it,” González-Montalvo said.