■ AIRCRAFT FINANCE
Is Your Aviation Operation at Risk?
BY MIKE BRODSKY & AMY EDWARDS
Y
Deloitte Financial Advisory Services LLP mbrodsky@deloitte.com / aaedwards@deloitte.com
ou’ve invested anywhere from $3 million to $90 million in your business jet, to ensure your travel safety and security. Add to that the annual costs of your flight department or management company, both fixed as well as direct operating costs including fuel, maintenance and repairs, safety/inspections, and onboard expenses such as food, beverage, and labor, and you are spending hundreds of thousands additional dollars. In a $77 billion industry, the potential for fraud is high. According to the Association of Certified Fraud Examiners (ACFE) 2020 Report to the Nations www.acfe.com/report-to-the-nations/2020, the median fraud loss for organizations in the transportation industry was $150,000. Since fraud is a risk that can be reduced with close attention paid to those areas which are inherently more susceptible to theft, mitigating these risks is an important, yet sometimes overlooked, part of business aircraft ownership and operation. Black’s Law Dictionary defines fraud as “a knowing misrepresentation of the truth or concealment of material fact to induce another to act to his or her detriment.” According to the ACFE, three specific factors typically enable individuals to commit fraud: pressure/ motivation, opportunity, and rationalization. 6 B U S I N E S S AV I AT I O N A DV I S O R Ju l y/A u g u s t 2 0 2 0
Pressure/Motivation can arise from the financial pressure both individuals and companies feel when they confront financial challenges and distress. As the economy continues to weaken, the incentive and likelihood of fraud increases. The National Business Aviation Association (NBAA) and other industry groups wrote to congressional leaders asking that business aviation companies be included in an aviation/airline bailout as a result of the financial uncertainty for the industry. Current financial circumstances illustrate examples of the potential pressure that could push unscrupulous individuals to commit fraud. ■ Opportunity can arise as a result of lack of supervision or oversight or the overriding of controls and processes. Smaller vendors with few employees might lack the capacity for a proper segregation of duties, which also may present an opportunity to commit fraud. ■ Rationalization for an individual to commit fraud against an owner/operator of, or investor in, a business jet could be as simple as envy. Some employees consistently serving high-net-worth individuals could rationalize their fraudulent acts as justifiable if they perceive the impact to be small relative to the owners’ wealth. Some fraud risk factors include: ■ Outsourcing your day-to-day operations to a management company. Services sourced by management companies include maintenance, fuel sourcing, inflight labor, and safety inspections. Lack of transparency between you and your management company can increase the risk of fraud. ■
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Fraud Alert!
