Each year the Association of Certified Fraud Examiners (ACFE) publishes a very interesting study regarding fraud. This year’s report includes data compiled from 2,410 cases of occupational fraud investigated by CFEs in more than 100 countries throughout the world. The frauds in this study accounted for more than $6.3 billion in total losses.
The 2016 Report to the Nations contains a wealth of information about how occupational fraud is committed and how it is detected, along with detailed statistics about the victims and perpetrators of these crimes. The report is an excellent resource about the risk of occupational fraud. Throughout the report, you will find a tremendous amount of information to help you assess fraud risk and benchmark your company’s anti-fraud programs against those at similar organizations.
The Report to the Nations is a free resource made available by the ACFE as a public service to its members and the general public. You can access it here: 2016 Report to the Nations
A few of the statistics that I found particularly interesting in this year’s report were:
- Among the various forms of asset misappropriation, billing schemes and check tampering schemes posed the greatest risk based on their relative frequency and median loss.
- In 94.5% of the cases in our study, the perpetrator took some efforts to conceal the fraud. The most common concealment methods were creating and altering physical documents.
- The most common detection method in our study was tips (39.1% of cases), but organizations that had reporting hotlines were much more likely to detect fraud through tips than organizations without hotlines (47.3% compared to 28.2%, respectively).
- When fraud was uncovered through active detection methods, such as surveillance and monitoring or account reconciliation, the median loss and median duration of the schemes were lower than when the schemes were detected through passive methods, such as notification by police or by accidental discovery.
- Organizations of different sizes tend to have different fraud risks. Corruption was more prevalent in larger organizations, while check tampering, skimming, payroll, and cash larceny schemes were twice as common in small organizations as in larger organizations.
- As in previous studies, external audits of the financial statements were the most commonly implemented anti- fraud control; nearly 82% of the organizations in our study underwent independent audits. Similarly, 81.1% of organizations had a code of conduct in place at the time the fraud occurred.
- The presence of anti-fraud controls was correlated with both lower fraud losses and quicker detection. We compared organizations that had specific anti-fraud controls in place against organizations lacking those controls and found that where controls were present, fraud losses were 14.3%–54% lower and frauds were detected 33.3%–50% more quickly.
- The most prominent organizational weakness that contributed to the frauds in our study was a lack of internal controls, which was cited in 29.3% of cases, followed by an override of existing internal controls, which contributed to just over 20% of cases.
- Fraud perpetrators tended to display behavioral warning signs when they were engaged in their crimes. The most common red flags were living beyond means, financial difficulties, unusually close association with a vendor or customer, excessive control issues, a general “wheeler-dealer” attitude involving unscrupulous behavior, and recent divorce or family problems. At least one of these red flags was exhibited during the fraud in 78.9% of cases.