Occupational Fraud Can Impact a Manufacturer’s Bottom Line

Manufacturers carry plenty of financial and operational risk: supplier delays, price swings, equipment failures. One of the most expensive risks sits inside the building. Occupational fraud happens when an employee, manager or executive uses their position for personal gain, and these schemes can run for months or even years before anyone notices.

The Association of Certified Fraud Examiners (ACFE) measures the problem in Occupational Fraud 2026: A Report to the Nations. For a manufacturer, knowing how these schemes work and putting the right safeguards in place is part of protecting margin.

What the 2026 ACFE report found

The ACFE examined 2,402 fraud cases across 143 countries and territories, involving more than $3.4 billion in losses. The median loss was $104,000 per case, and some organizations lost far more.

Occupational fraud falls into three categories:

• Asset misappropriation was the most common, appearing in 90% of cases.
• Corruption was involved in 45% of cases.
• Financial statement fraud occurred in just 6% of cases, but it was the most damaging, with a median loss of $1 million.

Where manufacturers are exposed

Complex supply chains, large inventories and a high volume of purchasing transactions make manufacturers a natural target for certain schemes.

Billing fraud. An employee creates a fictitious vendor, approves an inflated invoice or arranges payment for goods that never arrived. In some cases, purchasing staff take kickbacks from a supplier in exchange for favorable contracts or inflated prices.

Inventory theft. Raw materials, finished products, equipment and other valuable assets can walk out the door. These losses are hard to spot when inventory records are inaccurate or physical counts are infrequent.

Financial statement fraud. Less common, but serious when it happens. Employees or executives may manipulate inventory valuations, overstate revenue or hide expenses so performance looks stronger than it is.

Controls that cut losses

A well-designed internal control system removes many of the openings fraud depends on. In the ACFE’s 2026 study, more than half of the cases involved either inadequate internal controls or management overriding the safeguards that did exist.

Start with segregation of duties. The person who approves purchases should not also be able to set up vendors, process invoices and authorize payments. Splitting those responsibilities makes it much harder for one person to commit a fraudulent transaction and then hide it. From there, add:

• Regular inventory reconciliations
• Verification of any change to vendor information, such as bank details or remittance addresses
• Independent review of significant purchases and payments

The ACFE also linked several controls to substantially lower losses. Organizations with management reviews had median losses 55% lower than those without. Proactive data monitoring and analysis was associated with a 53% reduction, and surprise audits with a 50% reduction.

Make it easy for employees to speak up

Tips uncovered 43% of the fraud cases in the ACFE’s 2026 report, making them the most common way fraud was detected. More than half of those tips came from employees, who often see suspicious behavior before management does.

Manufacturers can encourage reporting by setting up a confidential reporting channel, telling employees it exists, and keeping a clear policy that protects anyone who raises a concern in good faith from retaliation.

Pair that channel with fraud training. Organizations with neither a reporting mechanism nor a formal training program had a median loss of $175,000. Organizations with both had a median loss of $85,000, and their fraud schemes ran 40% shorter.

Start with a review of your controls

Occupational fraud in manufacturing is not only a large-company problem. It can reach a business of any size. The practical first step is an honest look at the controls you already have, where one person holds too much of a process, and which reconciliations have slipped, before a loss forces the question.

Cooper Norman works with manufacturers and retailers across Idaho and Utah on exactly this, through our audit and assurance work and fraud and controls reviews. Bring us your questions about fraud risk and we will tell you where we would look first.