Aug. 17, 2021

This paid piece is sponsored by Eide Bailly LLP.

A version of this article previously appeared on EideBailly.com.

Fraud schemes are everywhere, and the Sioux Falls business community is no stranger to fraudsters. How do you know what costs should be recovered if you fall victim?

In many fraud litigation cases, the loss extends beyond the actual dollar amount appropriated and results in additional economic damages. The hidden costs of fraud can amount to far more than the perceived value and truly change the answer on everyone’s mind: “How much did they take?”

Common elements to consider when calculating fraud cost

Depending on the type of scheme perpetrated, various elements should be considered, including:

Taxes

Payroll and sales taxes as the result of fraud are a big deal. A recent fraud scheme involved a perpetrator who gave themselves unauthorized pay increases and fictitious overtime hours. In calculating the theft amount, it is common to calculate the loss as the gross amount overpaid to the individual.

Unfortunately, the company that paid the wages also incurred additional, and unnecessary, employer-paid payroll taxes. That’s 6.2 percent of the gross wages for Social Security and 1.45 percent for Medicare. This additional 7.65 percent is a loss that can be easily overlooked.

Sales tax also may be overlooked when dealing with unauthorized purchases schemes. A common example involves a perpetrator who orders additional items through a vendor that is routinely used by the business. Looking through the invoices, there may be 50 items purchased but only five of those items were fraudulent. In these instances, the portion of sales tax applied to those items may be overlooked. These are costs that otherwise would not have been incurred.

Shipping costs

Shipping costs associated with any fraudulent purchases also may be neglected. Depending on the size, weight and frequency of the products fraudulently purchased, shipping costs may account for a significant portion of the loss amount.

 Benefits

Payroll-related schemes often involve costs associated with benefits. When a perpetrator fraudulently inflates wages, they also may receive additional benefits tied to those wages. In one recent case, the perpetrator was receiving retirement benefits as a percentage of their wages. When they gave themselves unauthorized raises, they also received additional contributions to their retirement fund. These amounts, in addition to employer-paid payroll taxes, were included in the fraud loss suffered by the company. 

Fees

Fees can be tricky because most businesses have recurring fees that can easily go unnoticed. Fraudulent disbursement schemes are typically where fees need to be addressed. Here are some examples:

• Misuse of a company credit card resulting in additional finance charges.
• Cash-back fees or over-limit fees incurred by the organization.
• Fraudulent check or debit card payments by a perpetrator resulting in nonsufficient-funds fees or overdraft fees.
• Transfer fees incurred as a result of fraudulent or unauthorized transfers from company bank accounts.

 Cryptocurrency

As cryptocurrency becomes more prevalent, it’s important to understand its impact on fraud. Businesses and individuals must understand, trace and determine how and where cryptocurrency is used. The tracing of crypto assets is essential in a fraud investigation. Specifically, the tracking of crypto assets can help in situations like:

• Marital dissolution.
• Bankruptcy.
• Asset conversion.
• Insurance claims.
• Litigation support.
• Corruption charges.

How to know if you’ve covered all the costs associated with fraud

No matter how cut and dried a fraud scheme may seem, all costs associated with the activity should be considered. If you or your business have been the victim of fraud, consult with a professional fraud examiner. There could be more damage than you think.  

Dive Deeper: Visit EideBailly.com to read more about the cost of fraud in mergers and acquisitions, and hidden assets in estate or divorce cases.