How Do Performance Metrics Impact the Amount of Fraud Losses Recovered?

GUEST BLOGGER

Andi McNeal, CFE, CPA
ACFE Research Director

It is often said: what gets measured, gets done. In the newly released In-House Fraud Investigation Teams: 2017 Benchmarking Report, the ACFE surveyed its members regarding the performance, structure and operations of their organizations’ internal fraud investigation teams.

As part of the survey, we asked respondents which performance metrics, if any, are used to evaluate their investigation teams, and 39% reported that no performance metrics are used. The figure below (Fig. 22) shows the performance metrics used by the 61% of teams in our survey that do formally measure performance. For those teams, the most commonly used metric is the number of cases closed year-over-year (58%), followed by the amount of losses recovered (50%).

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To see how these various performance metrics affected organizations’ recovery of fraud losses, we then looked at the average percentage of fraud losses recovered based on the performance metrics that organizations had in place.

Not surprisingly, the two metrics associated with the highest average recovery rates are the amount of losses recovered and the percentage of estimated losses to actual losses. An interesting trend in this data is that performance metrics that focused on the quality of the outcome of investigations (e.g., recovery of actual losses or change in expected losses, cases resulting legal action, compliance with investigation standards, and amount of losses diverted) tend to correspond with greater loss recovery than performance metrics based on the quantity of cases completed (e.g., number of days to close cases and number of cases closed year-over-year).

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In Fig. 22, the number of cases closed year-over-year was the most common performance metric, but, as shown in Figure 23, organizations using this metric averaged one of the lowest percentage of losses recovered. Another significant finding is the relatively low percentage of fraud losses recovered (25%) by organizations that do not use any performance metrics to measure their investigation team’s effectiveness. Based on this analysis, organizations might consider revising some of their performance metrics or adding metrics to improve their recovery of fraud losses.

You can find these and other survey results in the full report, available for free to all ACFE members and for only $129 for non-members, at ACFE.com/benchmarking-report

How Fraud Examiners Can Use and How Fraudsters Can Abuse Artificial Intelligence

SPEAKER INTERVIEW

Amber Mac, TV/Radio Host, Internet of Things Expert at AmberMac Media, and keynote speaker at the upcoming 2017 ACFE Fraud Conference Canada in Toronto, October 29-November 1

What do you think is the No. 1 security risk that advancing technology poses?

I think the Internet of Things (IoT) attack surface is the biggest technology threat today. As Gartner points out, there will be 20 billion devices connected to the internet by 2020. However, unlike smartphones and computers, we're seeing thousands of newly released IoT gadgets every day from a myriad of suppliers. This means that security precautions are often bypassed in order to get to market more quickly. (Hear Amber discuss this even more in depth in her podcast interview at ACFE.com/podcast.)

How do you think fraud examiners could potentially use (and conversely fraudsters abuse) AI?

When we talk about artificial intelligence (AI), fraud examiners are more regularly using this technology to detect fraud (without even knowing it). For example, machine learning software (one application of AI) can now quickly and effectively determine accounting abnormalities. However, fraud attackers are also using early stage AI to commit fraud. If fact, most worrisome to me is video fraud. Many research institutions are already experimenting with algorithms that program a video to make a politician or business leader appear to say things that they did not. One can only imagine the issues with this as the technology gets into the wrong hands.

What are you most hoping attendees of the conference will take away from your presentation?

I really want attendees to leave my presentation with a much better understanding of the future of both the Internet of Things and artificial intelligence. It’s critical to recognize what’s happening in the market today and where things are heading in the next five to 10 years, so fraud examiners can properly prepare for the inevitable risks.

You are on the front lines of the latest and greatest technology out there, but what is one thing you still hold on to that is manual or traditional?

Strangely enough, I still write my research notes on a piece of paper or in a notebook. For me, it’s not that I don’t recognize the power of digital tools to simplify this process, but I use this practice as a memory tactic. It’s only upon writing with pen to paper that I can better recall facts and stats.

You can read more about Amber and register for the 2017 ACFE Fraud Conference Canada at FraudConference.com/Canada. Be sure to register by September 29 to save CAD 100!

ACFE Regent: Be Aware of Examination Tunnel Vision

Below is an excerpt from the latest article in Fraud Magazine, "The challenge of the chase: ACFE Board of Regents offer beneficial advice". All five elected regents sat down with Fraud Magazine at the ACFE Global Fraud Conference in June to discuss cyberfraud, technology, global partnerships and lessons learned. Here is one reflection from ACFE Regent Vidya Rajarao, CFE, CA and partner at Grant Thornton India.

Fraud Magazine (FM): One thing we don’t like to talk about are the things that didn’t go right. But we learn from those mistakes more than we learn from our successes. So, would you be willing to share some of the steps you made in the last year or past years that have really helped you in a particular case of how a fraud was working?

Vidya Rajarao: I think not understanding the scope of the problem is the biggest one. Initially you just have tunnel vision. You think it’s a small problem. You don’t realize it’s the tip of the iceberg. And what you’re attacking is just the tip.

FM: So, have you learned that there are no small problems? That you must assume this is the tip of the iceberg?

Rajarao: The challenge, as a practitioner, is I must assume this is not the tip of the iceberg, but then when you talk to clients they don’t want to hear that the problem is an iceberg. They want to contain it, and they believe that it’s just the tip. They want to believe it’s isolated: one rogue employee, one division, that it’s not a companywide problem. So, you need to balance the two. When you’re doing your work you still need be mindful that even though your current mandate is to evaluate the tip of the iceberg you’d be remiss in not telling your client once you have finished there is a larger problem behind the small issue, even though the client doesn’t want to hear that message.

FM: Can you think of an instance when you didn’t do that?

Rajarao: Yes, I can think of instances where I’ve not done that. Either because the client doesn’t want to listen or ... you’re just chasing the next fraud case. You’ve got five other cases, your teams are strained, so you just don’t explain the bigger picture. Five months later, you realize the small fraud is emblematic of a larger organizational issue either because of lack of controls, lack of training or they’ve done an acquisition and haven’t devoted time to transitioning everybody into one level of corporate governance. So, there’s only so much you can handle, and you’re always chasing.

Read the full interview in the latest issue of Fraud Magazine.