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Awareness Increases as Incidents of Fraud Grow

Corporations cannot afford to treat fraud as an uncontrollable act perpetuated on them. The risks and problems associated with fraud are on the rise, while the financial consequences of ineffective fraud controls are proving to be increasingly damaging. There is no doubt that fraud awareness is increasing at companies. According to PwC’s 2018 Global Economic Crime and Fraud Survey:

  • 49 percent of organizations globally said they’ve been victims of fraud and economic crime—up from 36 percent in 2016

  • 64 percent of respondents who had been victimized said losses due directly to their most disruptive fraud could reach $1 million

  • 52 percent of all frauds are perpetrated by people inside the organization

  • 31 percent of respondents who suffered fraud indicated they experienced cybercrime

Companies around the globe are experiencing the increase in economic crime. Reports have increased over the last few years and show no signs of abating. As a result, companies must adopt proactive measures, beginning with a risk assessment, which could include evaluations of anti-corruption, anti-money laundering, and trade controls risk measures.

This issue of the JCR features several articles on fraud. I am proud to have helped bring together this talented group of professionals to offer their perspectives on fraud and other topics of interest to turnaround and restructuring professionals. Authors include colleagues and friends, all of whom I have great respect for, whether we were on the same or opposite sides of the table on client cases.

Michael Goldman, head of KCP Advisory Group’s Forensic Accounting and Litigation Support, provides key cases and examples in “Internal Controls Are Front Line of Defense Against Fraud.” The article focuses on those tools, especially the value of good employees and how corporate culture can be a critical consideration.

One of the most well-known forms of fraud is the Ponzi scheme. Maureen Bass of Cullen and Dykman reports that the average size of the 47 Ponzi schemes uncovered in 2018 was $34.1 million, while total investor funds involved in these schemes was about $1.6 billion. Successful Ponzi schemes often leave a trail of litigation in their wake. Bass provides a wake-up call for service providers, who are often the targets of such suits, in “When Ponzi Schemes Collapse, Service Providers May Be in the Cross-Hairs.”

The global legal marijuana market was valued at $9.3 billion in 2016 and is expected to grow by 34.6 percent annually through 2025, according to reports from various cannabis investment websites. We asked the co-chairs of Burns Levinson’s cannabis practice, Frank Segall and Scott Moskol, to provide their perspective on some of the challenges facing companies in this young industry. They, along with Joshua Robinson of their firm, say one of those issues is a lack of available debt financing for marijuana-related companies. They explore the opportunity this creates in “Is the Time Ripe for Lending to Marijuana-Related Businesses?”

Adam H. Isenberg and Steven Reingold of Saul Ewing Arnstein & Lehr sort through the details and ramifications of litigation between AlixPartners’ Jay Alix and McKinsey, which has garnered intense interest in the turnaround and restructuring industry. They explore the latest developments in the cases in “Battle of Restructuring Industry Titans: Jay Alix v. McKinsey & Co.

Dr. Ruediger Mueller, CTP, of TCMI and Edward J. Sanz, CTP, of ABTV detail the growing number of private and public universities that are facing distress, their challenges, and how turnaround professionals can approach them in “Increasing Numbers of Colleges, Universities Are Failing to Make the Grade.”

Jacen Dinoff

Jacen A. Dinoff, CTP

KCP Advisory Group

Jacen Dinoff, CTP, is co-founder and CEO of KCP Advisory Group, a business advisory firm providing creative solutions to rehabilitate businesses. Dinoff has hands-on accounting, finance, management, and operations experience that complements his technical expertise in bankruptcy case administration and financial advisory. His career has included financial and operational restructurings, asset divestitures, and senior debtor/creditor advisor roles for both public and private companies.

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