Forefront

By: Pat O'Keefe

COVID-19. The ability to achieve success is the ability to timely act in a changing environment. Many crises create opportunity. While those opportunities are not easily seen by people that focus solely on the crisis, those entrepreneurs who critically think on how to adapt and seize the gaps in the market as the doomsayers retreat often enjoy unexpected success. A wise basketball coach once said, “never interrupt your opponent when he is making mistakes.” that is a priceless and insightful thought. Don’t follow the herd. Think proactively on how this situation is an opportunity. I have had many owners who have spent the last 5 years acquiring businesses who have now had to take a hard look at their bloated overheads that somehow have mushroomed overnight. Today they are running leaner, smarter and more profitable. Others have filled gaps and openings in the market by competitors who have shrunk or have aggressively backed away from opportunities because of paralysis from the pandemic. Others have shifted manufacturing capabilities or developed new products to meet a healthcare demand even though healthcare was not a core competency or target market. “He who hesitates has lost” is certainly true today. Don’t lose. Seek opportunity. Objectively reassess. Critically plan. There is no better time than the present.

In closing, I would only share that sometimes the market is not what it seems. I figured with work-at-home strategies, big office space would shrink. However, based on several recent studies, demand for space could increase or perhaps double as corporations have to provide more space for social distancing even with some of the workforce working remotely. The demand for open space is shrinking as interior designers and decorators are designing more enclosed and safe spaces for people to work in. Open gathering places in corporate office culture may shrink and be repurposed. The need for different kind of furniture configurations with shields and more dense barriers may be the new norm causing demand for more furniture and fixtures to rise not shrink. The author Malcom Gladwell has produced several books that would appear to form conclusions that buck the common perception. This is now a time to critically think, gather data, and chart new courses. I hope this latest edition of Forefront will incite some critical thinking to make your organizations stronger.

By: John Ruther

Beginning March 23rd Michigan’s Stay Home, Stay Safe Order response to COVID-19 and others like it throughout the country has shown a spotlight on a potential shift in what Americans find valuable. A vast majority of us have willingly accepted mandates determining essential work and compelling other businesses such as malls and restaurants to close. We have complied to suspend public gatherings, keep a social distance, and wear a mask. Yielding this kind of authority to government in the United States is unprecedented in times of peace. Nevertheless, to avoid risking the loss of life, we stay home and stay safe.

However, in the market driven economy of the United States, authorizing the government to decide what is valuable has caused confusion and uncertainty. Add the sociocultural unrest since George Floyd was killed, and uncertainty has compounded to the point of driving business to a standstill. It is unclear as to whether a business or even an industry’s goods or services will be considered valuable in the future. In the middle market, PE firms are choosing to forego nearly all exits.¹ Fundraising for PE firms is down significantly, yet as of July 2020 dry powder reached almost $1.7 trillion.² Dry powder in distressed private capital reached an all-time record high of $122 billion in June 2020.³

For the first time since perhaps World War II, the U.S. is facing its highest political, and social macroenvironmental risk. Given the usual stability of the country, there has been little focus on developing indicators or strategies to mitigate or exploit these kinds of risk. Instead, most models try to predict economic changes, or technology disruptors. In other words, our standstill is in part caused by a lack of preparedness to address certain types of macroenvironmental risk. Fortunately, companies looking to globalize have faced administrative/political and cultural risk since the dawn of international trade. Adapting strategies typically used for globalization to the U.S. may be an option to help move your business forward.

One particularly adaptable tool to help set these strategies is the CAGE Distance Framework. Pankaj Ghemawat, a professor at Harvard Business School, developed this strategy in his 2007 book “Redefining Global Strategy - Working in a World Where Differences Still Matter”. CAGE stands for the Cultural, Administrative/Political, Geographic, and Economic distance from your current business environment. Distance means identifying the CAGE differences and assigning levels of difficulty for your business to be able to work within the framework. Once built, this framework allows you to build strategies to overcome, or work within these differences. Many of the differences found when assessing other countries will be non-existent or carry little weight when assessing the changes to the U.S., such as language barriers or lack of common currency.

However, in assessing cultural distance where relationships among people determine the characteristics of a society, the framework looks at differences in religion, ethnicity and other values and norms. This could be of particular importance when your product matters to cultural identity such as we recently saw with a brand of syrup. Administrative/political distance encompasses laws, policies, and institutions mandated or enforced by governments. A component of this portion of the CAGE framework helps identify industries and businesses governments considered most essential (or most protected) such as producers of staple goods, businesses vital to national security, and large suppliers to the government. The geographic and economic distance can even help businesses strategize on how to enter new markets across the country and perhaps help revitalize economically depressed areas.

Of course, the overarching purpose of these exercises is to determine what is valuable. Valuable businesses will get funded. The risk associated with the business will determine this value and how much funding businesses receive. Developing strategies to address risk help give a level of comfort to the financial community granting credit, the making of investments. This comfort will help get the business world moving forward again.

By: Keith Chulumovich

As you all have read, the beginning of 2020 saw unprecedented global economic collapse as the COVID-19 pandemic brought the U. S. ten-year economic expansion to a screeching halt. The impact of COVID-19 has been dramatic in scale and scope and something the world has not seen since the Great Depression or the Spanish Flu Pandemic of 1918-20.

In March 2020, as COVID-19 started to spread, states implemented distancing strategies to slow the contagion, including the closing of schools and non-essential businesses, restrictions on public gatherings, and ultimately issuing shelter-in-place orders. These containment measures led to a severe contraction in economic activity, as businesses and schools switched to remote work or shutdown operations, and consumers canceled, restricted, or redirected their spending.

As we all adapted to shelter in place edicts, e-commerce took on a more significant role in filling basic consumer needs for many of goods and services we typically go to store to obtain, primarily grocery and health related items.

Online sales surged because of the pandemic. The latest predictions are that U.S. e-commerce sales are expected to grow 18% to nearly $710 billion in 2020, representing 14.5% of total U.S. retail sales, while brick-and-mortar retail sales are expected to drop 14% to around $4 trillion. This surge in new online orders however will not make up for the overall hit that the U.S. retail sector will take this year. Analysts estimate that total U.S. retail sales, which also includes auto and fuel, will drop by 10.5% in 2020 to $4.9 trillion — a level not seen since 2016.

While the pandemic is causing people to shop online at a much higher rate, stocking up on basic goods, some people are also taking advantage of this pandemic. According to some reports, consumers are also buying more luxury items, taking advantage of massive discounts stores are offering to empty their stocks and generate some cashflow.

Although the growth of e-commerce has put a strain on distribution networks and businesses have slowly been rebuilding their supply chain networks, the pandemic has forced business to accelerate this transformation tenfold. While the shift to online shopping has reduced the reliance of brick and mortar store fronts, e-commerce also requires a substantial physical presence. Logistics companies are also looking at warehouses for their needs and that has also caused an increase in demand. While we would like to think that everything related to e-commerce happens online, all e-commerce companies require physical warehouses.

While most industries have been negatively impacted, commercial real estate, specifically warehousing, is booming. And not just the volume of activity but the prices as well. This is because while some companies are selling their warehouses, companies such as Amazon are gobbling them up. Some reports suggest that warehouses are the hottest investment opportunity right now. This means that while struggling companies are selling their excess or idle locations, others are seeing it as an opportunity to increase their distribution capacity…………….a trend that will continue for a while.

As Winston Churchill said, “never waste a good crisis” and some companies have used the e-commerce surge to ramp up their competition against the likes of Amazon, Walmart, and other large players. Google for example is now steadily on the path of transformation of its e-commerce platform into an Amazon competitor. The technology giant has been trying to recruit more sellers to Google shopping since it offered free listings of products on the e-commerce platform. Google Commerce President Bill Ready wrote, “These changes are about providing all businesses—from small stores to national chains and online marketplaces—the best place to connect with customers, regardless of where a purchase eventually occurs.” He further added that “with more products and stores available for discovery and the option to buy directly on Google or on a retailer’s site, shoppers will have more choice across the board.”

Most of us are guardedly optimistic we will persevere through the pandemic; vaccines will eventually eradicate the coronavirus and our lives will get back to “the new normal”. What can we expect going forward? I think we can expect to see a continued increase in e-commerce transactions and unfortunately for some, the on-going decline of brick and mortar. And until the distribution networks catch up with the changing e-commerce landscape, same day or next day deliveries may be far and few between. Like every evolving industry before it, e-commerce competition and advances in network efficiency should lead to lower costs for consumers and businesses.

By: Violeta Zdravkovic

COVID-19 and the economic downturn it has caused abruptly changed higher education in the United States, leaving many institutions with significant financial challenges. These institutions were already facing financial hardships pre-COVID-19 due to declining student enrollment from both domestic and international students and decreased state funding. COVID-19 has brought new challenges.

Soon after COVID-19 was declared a national emergency in March 2020, the higher education institutions switched classes from inperson to online. Students were sent home to finish out their spring term and some received partial reimbursement for their room and board and other fees. Northwestern University said these reimbursements cost them approximately $25 million.¹

Now several months into this crisis, COVID-19 continues to hurt schools financially with declines in endowments, cancellation of summer programs, suspension of athletic programs, and other lucrative events – all of which generate millions of dollars in revenue. To illustrate, Clemson University generates approximately $31 million from tickets for sporting events, mainly football,² which is now in jeopardy if there are no games. But the biggest financial challenge may result from tuition shortfalls due to unpredictable enrollment. The economic downturn has caused families to lose income and the ability to afford the tuition without financial aid. Others may stay home if classes are held entirely online. The American Council on Education, an advocacy group for colleges and universities, stated higher education institutions should expect a 15% decline in enrollment for the Fall 2020 semester and a $45 billion decline in revenue from tuition, room and board and other services.³ In anticipation of funding shortfalls, these institutions have cut back on non-essential spending, reducing or freezing staff salaries and stopping construction projects. They are also increasing their applicants that are waitlisted and being less selective in their admissions process.

Looking to the new school year, colleges of all sizes have been forced to balance the competing concerns of community health and financial hardship. Many began announcing their plans for the Fall 2020 semester early in July. Some universities announced they will only have online classes while others announced a mix of both online and in-person instruction. However, there is uncertainty whether there will be any in-person instruction while COVID-19 remains active. Harvard University (“Harvard”) was one of the first institutions to announce classes for the Fall 2020 semester will be held entirely online. Shortly thereafter, the United States government issued new rules that would require international students with visas to leave the country or transfer elsewhere if their schools were fully online. Harvard and The Massachusetts Institute of Technology (“MIT”) immediately responded with a lawsuit challenging the government’s new rules. This lawsuit was supported by numerous universities in the nation with some saying they would file their own lawsuits. It is not surprising higher education institutions were opposed to the new rules considering the financial impact international students have. International students pay double the tuition of domestic students and are an important source of revenue, especially at a time when COVID-19 has decreased all funding. According to the Institute of International Education, Inc., the number of international students in the United States has almost doubled in the past 10 years to 1.1 million.⁴ These students contribute almost $41 billion to the economy and support 458,290 jobs according to the National Association of Foreign Student Advisors.⁵

Michigan has approximately 33,000 international students contributing $1.2 billion annually and account for 14,000 jobs.⁶ The majority of these students study at the University of Michigan and Michigan State University, ranking 15th and 25th in the nation, respectively, in terms of international students.⁷

In addition to the colleges and universities, several of the nation’s largest tech companies including Google, Microsoft, Facebook, and others filed a court brief in support of Harvard and MIT’s lawsuit. They claimed the new rules would “inflict significant harm” to their business and their ability to recruit top talent from the universities. They added international students are essential to educating the next generation of inventors. The attorneys general of 18 states also filed a separate, joint lawsuit against the government.⁸ Shortly thereafter, the United States government rescinded its new policy requiring international students to take at least one in-person class.

With the Fall 2020 semester set to begin shortly, a clearer picture will emerge of the damage inflicted upon higher education institutions across the country. Often, such a systemic shock creates permanent change. For the college system that may relate to trends in online learning, declines in international student enrollment, or a reassessment of the value of a college degree. While some schools focus upon minimizing short-term financial losses and others focus upon survival, all will be looking to the future wondering how this pandemic will change the landscape of higher education forever.

By: Susan Koss

The COVID-19 pandemic has ravaged the nation’s retail industry. During the national lockdown, at least 630,000 non-essential retail outlets were forced to close.¹ Simon, the largest U.S. mall operator, closed over 200 shopping centers.² Many well-known department stores, such as J. Crew, JCPenney, and Neiman Marcus, declared bankruptcy due to their unsustainable levels of debt entering the pandemic. The number of retailers filing for bankruptcy protection continues to climb including, most recently, Lord & Taylor. Unfortunately, the struggles resulting from lockdowns may only be the beginning, as shifts in consumer behavior leave retailers questioning the right strategy to stay afloat. To stay viable, retailers will need to find creative ways to weather this uncertainty in the short-term and be ready to adapt to new consumer preferences in the post-pandemic world.

Although economists now state that the recession began in February, retailers will reflect upon April as the month when the trouble began. U.S. retail sales plummeted by 12.6% in April 2020³ as non-essential retailers were closed due to the coronavirus pandemic. Certain segments of the retail industry incurred a disproportionate share of the losses. Clothing store sales dropped 73.5% for the month of April. Furniture store sales fell 49% while sporting goods and hobby store sales fell 34% in April. Restaurant and bar sales dropped 34%, while department stores were down 28.9% from March 2020 to April 2020.

Those retailers deemed essential were not hit as hard as the non-essential retailers. With many consumers confined to their homes, many embarked upon home-improvement projects. As a result, building material and garden supply stores emerging relatively unscathed with sales falling by only 2.2%. Grocery stores absorbed gains from panic buying observed early in the crisis as well as consumers left with few options but to cook at home, resulting in sales surging by 30.9% in April 2020 as compared to April 2019. Unsurprisingly, non-store retailer sales increased by 9.3% in April as people shopped online from home. E-commerce sales account for about 10.0% of total retail sales and this share is anticipated to continue to increase as a result of the coronavirus pandemic. The pandemic has forced some consumers to buy solely online, a trend that consumers will likely grow accustomed to. Retailers that offer essential items, such as grocery stores, have been able to keep demand steady. Conversely, luxury or discretionary item retailers will likely suffer in the long run as consumer behavior and preferences change.

As U.S. retail and food service businesses began to reopen in a limited fashion in May 2020, they experienced an increase in sales of approximately 17% from the previous month. Clothing and clothing accessories saw the largest jump in sales from April 2020 to May 2020 with an increase of 176.7%. Other trends observed in April continued into May, as consumers continued shopping online and engaging in home improvement. Non-store retailer sales in May 2020 were up 28.4% from May 2019, while building material and garden equipment and supplies dealers were up 18% as compared to May 2019.⁴

We now know that the second quarter of 2020 was the largest ever contraction of the U.S. economy at -9.5%. While subsequent quarters are unlikely to be so bleak, short-term signals suggest consumers are doubtful of a quick recovery. The consumer sentiment index, which fell to 73.2 in the first half of July 2020, down from 78.1 in June. Experts had predicted that the consumer sentiment for the beginning interval of the month would be about 79.⁵ The unexpected dip, however, puts the index back where it was in April 2020. The index had not been this low since October 2013 when it dropped to 73.1 due to a 16-day federal government shutdown.⁶ The July dip in the index is thought by economists to be due to breakouts of new COVID cases nationwide along with the continued uncertainty surrounding the disease and a potential vaccine. With consumer spending driving almost 70% of economic growth, the decline in consumer sentiment is an unwelcome sign for retailers looking to the future.⁷

Some retailers have quickly adapted to survive, whether that is to engage in e-commerce, offer delivery/pick up in-store options, or creating a new way of generating revenue. Tech-savvy retail chains, such as Nike and Lululemon have created online workout apps in order to keep customers engaged and maintain demand for their products. Other retailers such as Bed Bath & Beyond have converted some retail locations to fulfillment centers due to an 85% increase in sales in its e-commerce platform. As a result, the company has been able to rehire employees to meet the company’s e-commerce demand.⁸

Brick-and-mortar retail, faced with occupancy restrictions and limited foot traffic, are forced to focus on making each shopping trip more productive for the consumer. Some retailers will be able to withstand the limitations on foot traffic more than others. For example, the average gross margin (the difference between revenue and cost of goods sold divided by revenue) of clothing stores (46.2%) is higher than health and personal care stores (29.9%) by over 16%. Consequently, assuming a 50% decrease in foot traffic equates to a 50% decline in sales, a clothing stores will take a bigger hit than the personal care store in terms of profitability. Further profit erosion will hit certain retail sectors such as women’s apparel products that are mostly manufactured in China. The industry’s purchase costs are expected to fluctuate as operators contend with supply chain disruptions, leading to unsteady profit margins.⁹

With economic uncertainty at unprecedented levels, the retail industry is left with many more questions than answers. What will the economy look like in 6 months? Will consumers return to their old ways, or embrace new habits acquired during the pandemic? According to a recent survey of retail and restaurant industries, 83% of c-level executives believed that their industries would be changed forever as a result of COVID-19¹⁰. The retailers that can adapt most quickly to the changing environment will have the greatest chance for survival.

By: Andrew Malec, Ph.D.

The U.S. economy officially entered into a recession in February. According to the U.S. Bureau of Economic Analysis (“BEA”), real gross domestic product (“GDP”) decreased at a staggering annual rate of 32.9 percent in the second quarter of 2020 which followed a 5.0 percent decrease in the first quarter of this year.¹ Millions of Americans are unemployed, and the Federal Reserve has warned of an “extraordinarily uncertain path to recovery” with a fragile road back to steady growth and employment.² All else equal, this suggests lower company valuations for the near and foreseeable future.

According to the BEA, the decline in second quarter real GDP reflected across the board decreases in economic activity, which was partly offset by an increase in federal government spending (the trillions of dollars in governmental aid to households and businesses) and a decrease in imported goods. Otherwise, the decline in real GDP would have been even greater. Personal consumption expenditures reflected decreases in spending on services (led by health care) and goods (led by clothing and footwear). Exports primarily reflected a decrease in spending on capital goods. Investment primarily reflected spending decreases in retail (led by motor vehicle dealers), equipment spending (led by transportation equipment), and new single-family housing.³ The economic collapse in the second quarter was unrivaled in its speed and breathtaking in its severity. The decline was more than twice as large as in the Great Recession a decade ago, but occurred in a fraction of the time. The only comparisons in modern American history are the Great Depression and the demobilization after World War II.⁴

As of August 2020, the U.S. has experienced more than one million new weekly unemployment claims for 19 straight weeks. Further, about 30 million people are receiving unemployment benefits, a number that has come down only slowly as new layoffs — many of them permanent job losses, as opposed to the spring’s temporary furloughs — offset gradual rehiring.⁵ On August 8, 2020, President Trump signed four executive actions to provide economic relief amid the coronavirus pandemic.⁶ The three memorandums and one executive order call for extending some enhanced unemployment benefits, taking steps to stop evictions, continuing the suspension of student loan repayments and deferring payroll taxes. President Trump authorized a $400 weekly enhanced unemployment benefit for unemployed workers. The previous enhanced unemployment benefit, which added $600 a week to standard state unemployment benefits, expired at the end of July.

The Conference Board’s Consumer Confidence Index also decreased in July, after increasing in June.⁷ “Consumer Confidence declined in July following a large gain in June,” said Lynn Franco, Senior Director of Economic Indicators at The Conference Board…“The Present Situation Index (based on consumers’ assessment of current business and labor market conditions) improved, but the Expectations Index retreated. Large declines were experienced in Michigan, Florida, Texas and California, no doubt a result of the resurgence of COVID-19. Looking ahead, consumers have grown less optimistic about the short-term outlook for the economy and labor market and remain subdued about their financial prospects. Such uncertainty about the short-term future does not bode well for the recovery, nor for consumer spending.”

The impact of COVID-19 has been dramatic in scale and scope and something the world has not seen since the Great Depression or the Spanish Flu Pandemic of 1918-20.⁸ Further, increases in COVID-19 cases and deaths across the nation has led to a renewed pullback in economic activity, reflecting consumer unease and renewed shutdowns.

While the pandemic caused by COVID-19 has resulted in devastating consequences to the U.S. economy, it has also presented an opportunity to transfer wealth at lower value. Depressed economic conditions and uncertainty caused by the pandemic, coupled with an uncertain path out of this recession to economic recovery, suggests lower company valuations for the near and foreseeable future. Investors do not like uncertainty and require to be compensated for the additional risk of achieving a company’s cash flows through an increase in the required rate of return on an investment which translates into a lower valuation multiple for the investment. Alternatively, cash flow projections will be revised downward for those companies affected by COVID-19 which will also result in lower valuations.

Market transactions are also down significantly. According to PitchBook, U.S. private equity transactions decreased with 2,173 deals closed totaling $326.7 billion through the first half of 2020, a nearly 20 percent decrease in deal value compared to this time last year.⁹ Quarterly figures show an even steeper fall, with Q2 2020 deal value down more than a third from Q1 2019 values.

Although COVID-19 will likely be around for quite some time, it does present an opportunity to transfer wealth at lower value. As a result, gifting shares of privately-held equity interests in the current economic climate can take advantage of the increased risk and lower valuations caused by COVID-19.

By: Anson Smuts

The world feels more chaotic than usual. Promises of a vaccine and improving economic indicators provide reasons for hope, yet great uncertainty remains as to how this pandemic will evolve into the future – both from an epidemiological and economic perspectives. To add to our economic aggravations, fraudulent schemes are being perpetrated all around us. The scale, speed and magnitude of this economic downturn has created opportunity for fraudsters rarely seen before. While some fraud related to government programs have been detected and publicized, much of the fraud within companies is only beginning.

Generally, recessionary periods increase the likelihood of fraud due to increased financial needs and pressures felt by both companies and individuals. Financial need, along with perceived opportunity and rationalization, commonly known as the Fraud Triangle, are the three factors which may cause an individual to commit occupational fraud. This recession has also provided unprecedented opportunity for fraudsters to capitalize upon government funds being doled out at breakneck speed. Further opportunity has unfortunately also been provided by the number of people desperate for financial or healthcare assistance.

Across the country, states have reported hundreds of thousands of possible cases of fraud related to unemployment benefits. This has resulted in cash-strapped states being defrauded of millions of dollars, while countless individuals have either been denied their unemployment benefits or become subject to long delays in receiving those benefits. The disrupted distribution of benefits has undoubtedly wreaked havoc upon many lives, yet states have been unable to quickly address the issues due to their antiquated systems. According to Federal Trade Commission data, there were approximately 350,000 reports of identity theft in the second quarter of 2020, more than doubling the same figure from 2019. Much of the identity theft related to unemployment benefits. Other fraud activities with large increases since COVID-19 emerged include travel and vacation (mostly due to issues surrounding cancellations and refunds) and online shopping, which was fertile ground for fraudsters to exploit individuals stuck at home and eager to purchase anything which may lower their risks due to COVID-19. These online scams included everything from toilet paper and hand sanitizer to bogus cures and vaccines, testing kits, personal protection equipment (PPE).

Business loans and grants have also been the target of fraud schemes. The Paycheck Protection Program (“PPP”), which quickly disbursed almost 5 million loans worth over $500 billion, was particularly susceptible to fraud due to the pace and scale of this program. In addition, the program included a good faith certification requiring that “current economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant”.¹ This rather subjective clause was clearly a trade-off with foregoing time consuming due diligence usually involved with loans of this size and nature. As expected, some individuals decided to take extremely generous interpretation of what is “necessary.” Egregious examples include a Floridian who was recently charged with fraud for making false statements to a bank which resulted in nearly $4 million dollars in federal loans, some of which went towards the purchase of a blue Lamborghini.² In Detroit, a man obtained $590,000 in loans from the Paycheck Protection Program for a business which was dissolved in July 2019.³ Apparently also being a car enthusiast, the man used the funds to purchase two Cadillac Escalades, a Dodge Charger, and a Hummer.

In contrast with most white-collar investigations which often take years to complete, investigations related to PPP fraud have been conducted with an apparent sense of urgency. As of early August, 30 cases had been filed by the Justice Department related to tens of millions of dollars.⁴ The pace of these investigations, as well as the number of federal agencies involved, indicates the federal government is attempting to deter further fraudulent activity and possibly encourage some businesses to save the government the resources by simply returning the loans. When Treasury Secretary Steven Mnuchin first mentioned that the government would be conducting investigations of fraudulent PPP loans, about $30 billion in loans were returned.⁵ The Small Business Administration has said it will investigate all loans over $2 million, however it is likely that many smaller loans will also be investigated if the related business raises red flags.

The proliferation of fraud related to government programs should provide ample reason for companies and shareholders to remain vigilant of occupational fraud within their organizations. As recessionary conditions continue, the three elements of the Fraud Triangle will become increasingly evident amongst both private and public companies; as a result of declining business performance and the economic hardships inflicted by pay cuts, furloughs, and layoffs. Such occupational fraud generally falls into three categories: misappropriation of assets, corruption, or financial statement fraud. The Association of Certified Fraud Examiners (“ACFE”) found that the most common form of fraud is asset misappropriation, with a median loss of approximately $100,000.

At a time when cash flow is vital, businesses must act to ensure all proper internal controls are in place. This should include mechanisms to both detect and report fraud. According to the ACFE, almost half of all occupational fraud occurs due to a deficiency in internal controls.⁶ Therefore today is the best day to reassess anti-fraud policies, implement anti-fraud training, and improve compliance with existing measures.