Strategies in Fraud Detection, Prevention, and Forensic Accounting

Executive Summary

Fraud costs businesses billions annually.  Proactive measures in detection, prevention, and forensic accounting are essential for organizational resilience.  Recent data indicates that U.S. consumers reported $12.5 billion in fraud losses in 2024, a 25% increase from the previous year, with estimates suggesting the true figure could reach $196 billion when accounting for underreporting.  Meanwhile, 79% of organizations experienced payment fraud attempts in 2024, highlighting the pervasive threat across industries. This white paper, prepared by CR Advisory, explores the evolving landscape of fraud, leading practices for prevention, the critical role of forensic accounting, and real-world case studies.  By implementing robust internal controls, employee education, and advanced investigative techniques, businesses can mitigate risks and protect their assets.  CR Advisory specializes in tailored advisory services to help clients navigate these challenges effectively.

Introduction

Fraud remains one of the most significant risks facing businesses today, eroding profits, damaging reputations, and potentially leading to legal consequences.  With the rise of digital transactions, artificial intelligence (AI), and sophisticated cyber threats, fraudsters are adapting faster than ever.  In 2025, trends such as investment scams dominating losses at $6.6 billion, a resurgence in cryptocurrency fraud, and increasing synthetic identity attacks underscore the need for vigilance.  Financial institutions reported fraud rates rising for 67% of them, with 22% incurring losses over $5 million.

This white paper delves into three interconnected pillars: fraud detection, prevention strategies, and the specialized field of forensic accounting.  Drawing on industry insights and case studies, it provides actionable guidance for business leaders, CFOs, and compliance officers.  At CR Advisory, we leverage our expertise in risk management to empower clients in Pittsburgh and beyond to build fraud-resistant operations.

Fraud in Small Businesses: Unique Vulnerabilities

Small businesses aren't immune—they're prime targets for fraud, especially asset theft, due to limited resources and fewer internal controls.  Globally, small firms lose about 5% of annual revenue to fraud, with nearly half never fully recovering. Asset misappropriation, including theft of cash, inventory, or company property, is the most common form, occurring in 89% of occupational fraud cases with a median loss of $120,000. In small businesses, 22% of owners have experienced employee theft, often through schemes like check tampering, skimming, or unauthorized use of assets.

Challenges include:

• Insider Risks: Employees often handle multiple roles, increasing opportunities for embezzlement and asset theft.

• Limited Oversight: Lean teams make it harder to detect misuse of inventory or cash.

• Financial Hits: Average losses can reach $87,000 per incident, disrupting operations significantly.

 The Evolving Threat of Corporate Fraud

Corporate fraud encompasses a wide array of schemes, from internal embezzlement to external cyber attacks.  Common types include:

• Financial Statement Fraud: Manipulating records to inflate revenues or hide liabilities.

• Asset Misappropriation: Theft of cash, inventory, or intellectual property.

• Corruption: Bribery, kickbacks, or conflicts of interest.

• Cyber Fraud: Phishing, ransomware, and account takeovers, which saw a 26% increase in suspected digital fraud for account creations in the first half of 2025.

The financial impact is staggering.  Businesses lost an average of 7.7% of annual revenue to fraud in 2025, equating to $534 billion across surveyed leaders.  Emerging threats like AI-driven deepfakes and job scams, which surged to over $501 million in losses in 2024, further complicate the landscape.  Multi-step fraud attacks rose by 180% year-over-year in 2025, emphasizing the shift toward more organized schemes.

Understanding these threats is the first step toward effective mitigation.

 Fraud Prevention Strategies

Prevention is far more cost-effective than recovery.  Businesses should adopt a multi-layered approach, focusing on people, processes, and technology.

If Fraud Occurs, Your Preparedness and Response Impacts Your Customers' Satisfaction 

But fraud, if it occurs, and how you subsequently manage it, also impacts your perception amongst your customers.  Strictly ignoring the data-breaches like Google, Equifax, Yahoo, Marriott, LinkedIn, the list goes on (and Paul covers enough of this in his Cyber articles...)  Many of our clients think they are too small to be fraud victims, and therefore do not invest sufficiently in robust control frameworks and other preventive measures.  Remember, an ounce of prevention is worth a pound of cure.  If you think you're too small to be a victim of fraud, below is a semi-recent local news piece (one of many) where "Allegheny County police arrested and charged a lifelong member and treasurer of a Carnegie church with stealing nearly $225,000 from the parish." 

If the lifelong church member who, allegedly, is implicated in stealing from his own church does it, it could happen to you — I don't care if your revenue is $50,000 a year or $250,000,000 a year.

But Here is the Twist...

Just because someone commits fraud doesn't mean they're evil.  If you're still reading, be patient with me here.

There is something called the 10-80-10 Rule.  I would call it more of a postulate, but it is arguably a law, maybe a principle, but let's not get pedantic.  It is defined as follows: 

The 10-80-10 rule of fraud suggests that in any organization, 10% of people will never steal, 10% will steal whenever possible, and 80% are situational, committing fraud only if tempted by opportunity, pressure, or rationalization. It emphasizes that effective controls should focus on deterring the 80%. 

This rule brings into consideration those 80% who could go either way.  A lot higher of a percentage than you would think, right?  It could be Carol who was your controller for 20 years, but recently started embezzling.  It could be Tom who worked on your loading dock for 15 years, but 6-months ago, he started walking inventory out the door.  It could be the "lifelong member and treasurer of a Carnegie church [accused of...] stealing nearly $225,000 from the parish".  The point of this rule is that 80% of the people we encounter, potentially every day, are capable of committing fraud, as long as all three elements of the fraud triangle are in place.

So, what is the fraud triangle?  As the quote above implies, it is when some of that 80% are tempted by opportunity, pressure, and rationalization.

The explanation that I am about to provide is very general as there are more examples to cover than is possible in the brief confines of this already overflowing paper.  Opportunity, very generally speaking, results from a lack of internal controls (i.e.: an employee, officer, or stakeholder knowing they probably won't get caught).  Pressure, as shown above, is the motive (e.g.: "I have to meet my quarterly sales quota", "I have to meet my earnings target", it could be something along the lines of "I have gambling debts" or "bills to pay" or things as quotidien as "I can't afford to care for my family", or "I needed a new car.").  Rationalization is the more nebulous factor of the three; however, as it involves personal justification.  As one can imagine, it is much more of a psychological quality, but it usually ends with an unstated "I deserve it", or an "I needed it".  Examples include "My boss makes more than me.  I haven't had a day off in x.  I got passed over for a promotion." The list goes on, but perhaps the most common rationalization that I've seen is "I was in trouble and was planning to pay it back". 

As a business owner, the point in all of this, is that if a fraud occurs it is going to certainly cost you something quantifiable.  But it will also, very likely, cost you something unquantifiable. Would you want to stay a parishioner of a church where the treasurer was accused of embezzling funds? If it happened to your own company, what do you think your customer base would think of that?  Sure much of that depends on the circumstances of how the fraud occurred and the nature of the fraud. But a lot depends also, on how leadership responded. But more importantly, how did leadership prepare for it?.  To answer your question, here is what McKinsey has to say (hold the consultant jokes please):

Here Are Some Tactics to Manage Fraud Prevention

1.  Employee Education and Awareness

Your workforce is the first line of defense.  Train employees to recognize red flags like phishing emails or unusual payment requests.  Leading practices include:

• Regular cybersecurity training on social engineering tactics.

• Establishing a reporting system for suspicious activities.

• Fostering a culture of ethics to deter internal fraud.

2.  Robust Internal Controls

Implement segregation of duties to prevent any single individual from controlling all aspects of a financial transaction.  Conduct periodic audits and use tools like Positive Pay for check verification.  Monitor high-risk accounts and verify all invoices against supporting documentation.

3.  Technology and Monitoring

Leverage AI for real-time transaction monitoring and anomaly detection.  Strengthen cybersecurity with firewalls, multi-factor authentication, and vendor risk assessments using tools like SecurityScorecard.  Avoid paying via high-risk methods like wire transfers without verification.

4.  Vendor and Third-Party Management

Perform due diligence on suppliers, including external security ratings and contractual clauses for minimum security standards like SOC 2 or ISO 27001.

By integrating these strategies, businesses can reduce fraud incidents significantly.

The Role of Forensic Accounting in Fraud Detection

Forensic accounting bridges accounting expertise with investigative prowess to uncover and prevent fraud.  Unlike traditional auditing, it focuses on legal scrutiny and evidence gathering.

Key Functions

Detection: Forensic accountants trace transactions, analyze financial statements for anomalies, and use data analytics to identify discrepancies.

Investigation: In cases of suspected fraud, they reconstruct events, quantify losses, and prepare court-admissible evidence.

Prevention: By assessing internal controls and recommending enhancements, they help fortify defenses against future threats.

AI enhances forensic efforts by automating anomaly detection, allowing accountants to focus on complex schemes.

Case Studies: Lessons from Real-World Frauds

Examining past cases reveals patterns and preventive measures.

Case Study 1: Enron Scandal (2001)

Enron's collapse involved massive financial statement fraud through off-balance-sheet entities, leading to $74 billion in shareholder losses.  Detection came via whistleblowers and forensic audits revealing inflated revenues.  Lesson: Strengthen corporate governance and independent audits to prevent executive overreach.

Case Study 2: WorldCom Debacle (2002)

WorldCom inflated assets by $11 billion through improper capitalization of expenses.  Forensic accountants uncovered the scheme during an internal audit.  Lesson: Implement rigorous expense tracking and segregation of duties to detect misclassifications early.

Case Study 3: Bernie Madoff Ponzi Scheme (2008)

Madoff's $65 billion fraud evaded detection for decades via fabricated returns.  Red flags like consistent high returns were ignored until a market downturn exposed it.  Lesson: Use third-party verification [In this case the reference is to the fraudulent investment statements that Madoff presented to his clients. A practical application of this would be, for example, in the case of A/P fraud, requesting third-party vendor verification of their invoices. In the case of suspected A/R fraud, requesting customer verification of your invoices]. 

Case Study 4: Recent Apple Employee Fraud (2025 Plea)

A former Apple buyer defrauded the company of $17 million through kickbacks and inflated invoices.  Detection involved internal reviews and forensic tracing.  Lesson: Monitor procurement processes and vendor relationships closely.

Conclusion

Fraud detection, prevention, and forensic accounting form a triad essential for business security.  By adopting the strategies outlined—employee training, internal controls, technology integration, and forensic expertise—organizations can safeguard their future.  In 2026 and beyond, as threats evolve with AI and global connectivity, staying ahead requires expert guidance.