Dear Business and Community Leaders and Residents:
Thank you again for the opportunity to serve the Westminster Chamber of Commerce in my current capacity.
I would like to call your attention to important information contained in “Report to the Nations on Occupational Fraud and Abuse” issued by the Association of Certified Fraud Examiners. The most recent report issued this year, again focuses on the nature of frauds that take place in all types of organizations, but not between individuals. First, as a summary, the existence of fraud makes it more difficult for honest business owners, governments, and tax exempt organizations, in fact all of us, to be successful because the cost of fraud must be passed on to customers, or to the public as a whole, in the form of higher prices. Fraud accounts for about 5% of worldwide revenues of businesses, governments, and tax exempt organizations. The total cost of fraud is about $3.7 trillion dollars annually, worldwide. 88% of the total dollar amount of fraud is committed within businesses. 10% of the total dollar amount of fraud is committed within governments. That leaves 2% of the total dollar amount of fraud, committed within religious, charitable, and social service organizations. 86% of the total dollar amount of fraud, worldwide and in the United States, is committed by managers, business owners, and executives. This means that of the $3.7 trillion dollars lost to fraud annually, $2.7 trillion of that amount, is shifted from low and middle income individuals to some of the wealthiest individuals in our country and around the world each year, exclusively through fraud.
Individuals earning just $20,000 per year will lose an average of $1,000 per year, as victims of fraud. In a lifetime of 80 years, calculating the loss beginning at age 20, that is $60,000. At an annual earnings rate of 5%, the total lifetime loss is $391,000. Most low income individuals are never able to buy a home in their lifetimes, solely because of the fraud committed against them and the rest of us.
There is a widely held view that there are significant errors and/or frauds being committed in our communities. Some of the most prevalent types of financial underreporting consist of:
- Underreporting of sales and sales/use tax
- Underreporting of payroll and payroll taxes
- Underreporting of self-employment income and self-employment taxes by independent contractors
- Underreporting of federal income tax
- Underreporting of state income tax
- Underreporting of social security which weakens our Social Security system
- Underreporting of Medicare which weakens our Medicare system
- Submittals of erroneous documents to lenders for loan approval
I have recently begun the process of attending City Council meetings, as well as participating in discussions with City Officials and executives with the Board of Equalization. I plan to add to my agenda, discussions with other government agencies. My goal is to help find solutions that will significantly reduce and hopefully eliminate these types of practices.
I wish you the best in your endeavors. Thank you for being an honest business and community leader. Your membership and involvement in Westminster Chamber of Commerce is greatly appreciated. Happy New Year!
Yours very truly,
James G. Davidson