The first national study of its kind, business advisory and accounting firm MNP LLP has released Fraud Aware 2019: National Study on Reported Fraud Cases in Canada, which compiles data from over two hundred criminal convictions of fraud to glean critical insights about how organizations can reduce the instances of this type of crime in Canada.
Fraud is happening from coast to coast but there are pockets of higher prevalence, the report revealed. The most convictions and the largest reported losses due to fraud were seen in Ontario, Quebec, Alberta and British Columbia.
Ontario led the way with the most frauds at 122 and B.C. had the largest total losses with $14.3 million. The resource-rich province of Alberta had the highest media monetary fraud at $1.25 million, with Newfoundland and Labrador close behind ($1.01 million).
“This comprehensive analysis provides Canadian business leaders with information that can help protect their companies,” says Greg Draper, Vice President of Valuations, Forensics and Litigation Support at MNP. “We know fraud happens regularly at businesses throughout the country but using this report we can pinpoint what businesses should watch for and the most common vulnerabilities.”
The top fraud schemes were stock price manipulation, Ponzi schemes, GST fraud, Investment fraud, cash misappropriation, Mortgage fraud, and Tax evasion but two types were the runaway leaders in terms of costliest frauds – 15 Ponzi schemes led to $549 million in losses and two cases of stock price manipulation totalled $87 million. Of the 206 prosecuted cases reviewed, the majority of the fraud schemes lasted about three years.
“Preventative and detective measures are important as fraud losses grow exponentially after one year in duration,” explains Draper. “Information like common types and length of the crimes as well as details about post-detection prosecution underscore the need for organizations to become aware of their vulnerabilities and take a proactive approach to fraud prevention.”
Underscoring the need for proactivity when it comes to fighting fraud, the report revealed that, although restitution was ordered in 70 per cent of fraud convictions, it amounted to only 29 per cent of the fraud losses.
“Most companies never think they have a fraud issue until the dollars go out the door. What’s worse is that many organizations are operating with a false sense of security – they might think they can count on the police or criminal courts to get the money back if fraud occurs. But recouping losses is very difficult. Even if restitution is ordered it is rarely for the full amount and very often not complied with,” says Draper.
Despite the often-lasting impact of fraud on businesses and organizations, many frauds are never reported or ever reach the criminal justice system. The civil justice process is often timelier and routinely more effective at recovering fraud losses.
“Under five percent of fraud is reported,” says Jeff Thomson, Sergeant with the RCMP at the Canadian Anti-Fraud Centre (CAFC). “Victims range from large corporations to small businesses but it can be a very laborious effort to investigate and expensive to prosecute so they might not take legal action.”
To that end, one alarming area of research in the report was sentencing. The maximum penalties for fraud have increased since 2012, yet the data showed that longer prison sentences are not yet being imposed.
“Ultimately, fraud prevention falls on the businesses – not law enforcement – so it is critical that all organizations create a security-vigilant culture with stringent anti-fraud processes,” says Draper.
Draper is a former RCMP investigator who now leads a national team of specialists in workplace fraud mitigation at MNP LLP. They work with businesses to identify and rank fraud risks unique to each organization and sector, and then provide recommendations to improve the effectiveness of their internal controls. They also design and implement fraud risk management programs to help organizations prevent, detect and even prosecute fraud.
“With the incidence of fraud losses growing in Canada, a clear commitment to fraud prevention is the best line of defence and that starts at the top with an organization’s board,” advises Draper. “A thorough fraud risk management program that considers risks posed by senior members of the organization, as well as more junior employees is critical because both greed and need can come into play on both a personal and corporate level.”
The report found that individuals over the age of 65 – many of whom hold positions of trust and power with an organization – executed the largest frauds in Canada. Fraud is committed, by and large, out of greed, which was the motivation for 63 per cent of the frauds researched. Other motivators included gambling, financial hardships, drug addiction and relationships.