Pub. 15 2020-2021 Issue 1

WWW.NEBANKERS.ORG 18 COUNSELOR’S CORNER Fraud and the Economy Bob Kardell, Baird Holm LLP T HE ASSOCIATION OF CERTIFIED FRAUD Examiners released their bian- nual survey this year on occupa- tion fraud; the survey again shows the average organization loses 5% of their annual gross revenue to fraud. 1 The issues stemming fromfraud canbemagnified sig- nificantly during an economic crisis such as the one the United States is currently experiencing due to COVID-19. The fraud in such an economy can be categorized into two groups: fraud which has been ongoing and only uncovered due to the drop in the economy, and fraudsters taking advantage of the economic situation. Ongoing Fraud Revealed Warren Buffet once said, "Only when the tide goes out do you discover who's been swimming naked." The latest drop in themarket will likely uncover some fraud such as the frauds revealed in the last two recessions. The market drops in 2000 and 2001 resulted in the uncovering of frauds in Enron and World Com and many other "dot com" bubble companies. The market drops in 2008 resulted in the uncovering of Bernie Madoff's Ponzi scheme as well as several other frauds. The current crisis to hit the economy will uncover a plethora of fraud, waste, and abuse over the next several months to years. This type of fraudulent activity has been there all along; it never really left after the mortgage fraud prosecutions of 2008had subsided, but the rising economy causes companies to overlook such issues and problems. The companies are then forced to reckon with the issues when the economy declines and budgets get tight. Several years ago, I worked on a case in which a business manager had been com- mitting fraud. The business manager had