The Association of Certified Fraud Examiners (ACFE) releases a report biannually on fraud in the workplace. The Report to the Nations on Occupational Fraud and Abuse was most recently released in 2016. The report provides statistical information on occupational fraud, with the goal of raising the level of awareness of fraud risk. The 2016 edition analyzed 2,410 cases of fraud committed between January 2014 and October 2015, with a total loss of more than $6.3 billion. While the full Report to the Nations contains 92 pages of data, the following are some findings reported by the ACFE.
- Certified Fraud Examiners participating in the survey estimated that the typical organization loses 5% of its annual revenues to fraud.
- The median loss caused by the frauds included in the study was $150,000. Twenty-three percent of frauds caused losses over $1 million.
- The median duration of fraud from beginning to discovery was 18 months. Losses rise as the duration increases, with frauds lasting more than 5 years resulting in a median loss of $850,000.
- Asset misappropriations (theft) were the most common, occurring in 83% of the cases in the study, as well as the least costly, causing a median loss of $125,000. Of the types of asset misappropriations committed, those with the greatest risk are check tampering and billing schemes. Financial statement fraud resulted in 10% of cases, but those cases had the largest financial impact with a median loss of $975,000. Corruption schemes claimed 35% of cases with a median loss of $200,000.
- Fraudsters (yes, this is the technical term) tend to display warning signs with their behavior. These red flags include living beyond their means, experiencing known financial difficulties, an abnormally close relationship with a vendor or customer, control issues, a tolerant attitude toward unscrupulous behavior, or a recent divorce or family problem. One or more of these red flags were exhibited in 79% of cases.
- Tips continue to be the most common detection method in 39% of cases. Additionally, organizations with hotlines were much more likely to detect fraud by a tip (47%) than those without hotlines (28%).
- The presence of controls designed to prevent fraud was correlated with both lower fraud losses and quicker fraud detection. Where anti-fraud controls were present, fraud losses were 14%–54% lower and frauds were detected 33%–50% more quickly.
- 40.7% of the organizations that experienced fraud decided not to refer their fraud cases to law enforcement, citing bad publicity as the reason in most cases.
- Only 23% of the cases in the study resulted in a civil suit.
- Small organizations had a significantly lower implementation rate of anti-fraud controls than large organizations. This leaves small organizations susceptible to frauds that can cause significant damage to their limited resources.
The full Report to the Nations is available for download at the ACFE website.
Paul Biggs, CPA