With the publication of the 2018 Report to the Nations, I am struck by how this study, like the Association of Certified Fraud Examiners itself, is in many ways a tribute to the vision and dedication of our founder and chairman, Dr. Joseph T. Wells, CFE, CPA. When Dr. Wells created the ACFE, he did so because he recognized there was a fundamental flaw in how organizations were attempting to prevent, detect, and investigate fraud.Read More
The most cost-effective way to limit fraud losses is to prevent fraud from occurring. But, how exactly do you prevent fraud? There isn't a one-size-fits-all approach, as we know, because there isn't one company size, one, single company culture, one type of reporting hotline or one single person within a company who is responsible for all fraud-related efforts.Read More
Mandy Moody, CFE
ACFE Media Manager
The ACFE's 2016 Report to the Nations on Occupational Fraud and Abuse provides an analysis of 2,410 cases of occupational fraud that occurred in 114 countries throughout the world. What makes this analysis so valuable is its ability to give readers a true idea of the toll fraud can take on a company.
Here are the top five conclusions that describe the impact fraud can have on the bottom line:
- Asset misappropriation was by far the most common form of occupational fraud, occurring in more than 83% of cases, but causing the smallest median loss of $125,000. Financial statement fraud was on the other end of the spectrum, occurring in less than 10% of cases but causing a median loss of $975,000. Corruption cases fell in the middle, with 35.4% of cases and a median loss of $200,000.
- The longer a fraud lasted, the greater the financial damage it caused. While the median duration of the frauds in our study was 18 months, the losses rose as the duration increased. At the extreme end, those schemes that lasted more than five years caused a median loss of $850,000.
- Approximately two-thirds of the cases reported to us targeted privately held or publicly owned companies. These for-profit organizations suffered the largest median losses among the types of organizations analyzed, at $180,000 and $178,000, respectively.
- Of the cases involving a government victim, those that occurred at the federal level reported the highest median loss ($194,000), compared to state or provincial ($100,000) and local entities ($80,000).
- Although mining and wholesale trade had the fewest cases of any industry in our study, those industries reported the greatest median losses of $500,000 and $450,000, respectively.\
It is impossible to know exactly how much fraud goes undetected or unreported, and even calculations based solely on known fraud cases are likely to be underestimated, as many victims downplay or miscalculate the amount of damage. Nonetheless, attempts to determine the cost of fraud are important, because understanding the size of the problem helps bring attention to its impact, enables organizations to quantify their fraud risk, and helps management make educated decisions about investing in anti-fraud resources and programs.
Find more takeaways and download the full report at ACFE.com/RTTN.
ACFE Public Relations Specialist
“Waste, fraud and abuse” has become a pervasive soundbite in the 2016 U.S. presidential election, but just how much fraud is actually occurring in the government? In a study of 2,410 occupational fraud cases investigated by Certified Fraud Examiners (CFEs) between January 2014 and October 2015, 18.7 percent of the reported fraud instances occurred in government entities. Although the instances of reported fraud in the government occurred at an equal frequency between local, state and federal government, cases that occurred on the federal level cost a median of $194,000 each — a noticeably higher level than the median cost of fraud at the local and state government levels ($80,000 and $100,000 respectively).
The Association of Certified Fraud Examiners (ACFE) published the results of its most recent global fraud survey in its highly anticipated 2016 Report to the Nations on Occupational Fraud and Abuse. Other key findings from the 92-page report include (all values in U.S. dollars):
Fraud is incredibly costly. The total cost of the frauds reported in the study was over $6.3 billion, with 23 percent of the cases costing more than $1 million. The study respondents estimated that the typical organization loses 5 percent of its annual revenue to fraud each year. When applied to the 2014 estimated Gross World Product of $74.16 trillion, this translates to potential global fraud losses of up to $3.7 trillion.
Small businesses are especially at risk. The study found that organizations with fewer than 100 employees faced the same median cost per instance of fraud as companies with more employees. However, less than half of the smaller organizations had implemented some of the most basic anti-fraud controls like implementing a fraud hotline, and establishing a management review and code of conduct.
Hotlines are becoming an expected control in most companies. In the study, CFEs reported that 60.1 percent of the organizations they worked with had a fraud reporting hotline in place, an 8.9 percent increase from the findings reported in 2010.
Physical documents are still key components in fraud. For the first time, respondents were asked how fraudsters attempted to cover their tracks. Even in such a technologically driven world, fraudsters are still relying on creating fraudulent physical documents, altering existing physical documents or destroying those documents.
The Report to the Nations also details findings such as how fraud risks varied by 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.
The 2016 Report to the Nations is available for download online at ACFE.com/RTTN.
Andi McNeal, CFE, CPA
ACFE Director of Research
Accounting doesn’t happen in a vacuum. The performance, processing, reporting and analyzing of financial transactions inherently involves people. And people, by nature, make errors, have lapses in judgment, and — sometimes — break the rules intentionally.
Although this point may seem self-evident, it’s a message that all too often gets forgotten amidst the check-the-box approaches and “it couldn’t happen here” mindsets that are common in many organizations. Thinking about the people behind the processes, transactions and numbers — and considering what might lead those people to succumb to the pressure, opportunity and rationalization to commit fraud — is critical to protecting an entity’s resources from dishonest employees.
As anti-fraud professionals know, individuals who perpetrate fraud look just like everyone else. They are our coworkers, our acquaintances, and even our friends and family members. Many appear outwardly honest and ethical, making it particularly difficult to suspect or believe that they would breach their employer’s trust. And yet, effectively preventing and detecting fraud requires us to do just that.
The ACFE's 2014 Report to the Nations on Occupational Fraud and Abuse provides some insight into the people behind the crimes. Of the perpetrators responsible for the 1,483 occupational fraud cases analyzed in our study:
- 42% were staff-level employees, and 36% were mid-level managers.
- 55% worked alone in committing their scheme.
- 52% were between the ages of 31 and 45.
- Two-thirds were male.
- 47% had worked for the victim organization for less than six years.
- 72% had at least some university education.
- 45% worked in the accounting, primary operations, or sales functions of the victim organization.
- 87% were first-time offenders with no criminal history of fraudulent behavior.
- 44% were known to be living beyond their means.
Obviously, simply meeting the profile outlined by the data above does not mean that an individual is going to commit fraud, nor should someone who falls outside the profile be immune from suspicion. However, examining trends in the characteristics of fraudsters can provide context and perspective to those charged with identifying high-risk areas and individuals.
With this in mind, the ACFE has created an infographic that illustrates the statistical profile of a fraudster to help inform anti-fraud professionals, management and the general public about some of our findings regarding occupational fraud perpetrators. This profile can be a valuable training and awareness tool, particularly when conveying the message that fraudsters don’t exhibit any sort of identifying hallmark — no special uniforms or badges, no “bad-guy” masks. The more we understand and help educate others about the human face of fraud, the better prepared we all are to prevent and detect fraudulent behavior.
Read more about the 2014 Report to the Nations at ACFE.com/RTTN.