ACFE: Organizations Come Up Short in Fraud Prevention
Organizations around the world lose an estimated 5 percent of their annual revenues to occupational fraud, according to a survey of Certified Fraud Examiners (CFEs) who investigated cases between January 2012 and December 2013. Applied to the estimated 2013 Gross World Product, this figure translates to a potential total fraud loss of more than $3.5 trillion (U.S.).
The 2014 Report to the Nations on Occupational Fraud and Abuse, released by the Association of Certified Fraud Examiners, includes data compiled from 1,483 cases of fraud.
Key findings include:
- Fraud schemes are extremely costly. The median loss caused by the occupational fraud cases in the study was $145,000. Nearly one-fourth (24 percent) of these cases caused losses of at least $1 million.
- Schemes can continue for months or even years before they are detected. The frauds in the study lasted a median of 18 months before being caught.
- Tips are key in detecting fraud. Occupational fraud is far more likely to be detected by a tip than by any other method. More than 40 percent of all cases were detected by a tip – with the majority of them coming from employees of the victim organization.
- Occupational fraud is a global problem. Though some findings differ slightly from region to region, most of the trends in fraud schemes, perpetrator characteristics and anti-fraud controls are similar regardless of where the fraud occurred.
- High-level perpetrators do the most damage. The median loss among frauds committed by owner/executives was $500,000, considerably higher than the median loss of $130,000 for frauds committed by managers and $75,000 for frauds committed by other employees.
- Small businesses face increased risk. The smallest organizations in the study suffered disproportionally, with a median loss of $154,000 – higher than the overall median loss for fraud cases in the study ($145,000). These organizations typically employ fewer anti-fraud controls than their larger counterparts, which increases their vulnerability to fraud.
The Report to the Nations also details findings such as how organizations were affected based upon industry, how the implementation of anti-fraud controls affected exposure to fraud, the breakdown of fraud statistics by geographical region and the most common behavioral traits observed among fraud perpetrators.
Information from CFEs in more than 100 nations was compiled to develop the benchmarking statistics on occupational fraud losses, detection methods and perpetrators.
Illustration by David Castillo Dominici at Free Digital Photos.net