John Warren, J.D., CFE
ACFE General Counsel
A common and persistent challenge for anti-fraud practitioners who deal with occupational fraud is how to measure the impact of these crimes. At a basic level, any organization needs to understand what its revenues and expenses are in order to operate efficiently. Yet occupational fraud is an expense that many organizations are either unwilling or unable to account for. This puts the anti-fraud professional in a bind. How can we justify funding for anti-fraud programs or explain the value of our services if the organizations we serve do not understand the threat?
Ultimately, it is the job of the anti-fraud community to educate our clients and employers about the impact of occupational fraud. If we as a profession cannot make a compelling case for our own services, then who can? But as it turns out, there are challenges to putting a number on the damage caused by occupational fraud.
First, it is extremely difficult to determine the full extent of occupational fraud losses because so many schemes go undetected. If somebody walks into a bank with a gun and steals $100,000 from the vault, the bank knows it has been robbed. But if a bank manager embezzles $100,000 through phony invoices or payroll fraud, it is possible no one will even realize there’s been a crime.
Plus, even when an organization detects the fraud, it may not be able to calculate the true cost of the crime. Did we find every phony invoice from the bank manager, or just the ones he admitted to? Were there other schemes we weren’t aware of? And once the bank has caught the fraud, it may decide not to report it for fear of bad publicity or lost customer confidence, which means that the true cost of fraud ends up underreported.
The second major challenge anti-fraud professionals face is measuring the value of fraud prevention. We know, both intuitively and from experience, that it is much better to prevent a fraud than to catch one after it has happened. But how can we quantify that value? If we spend $50,000 on enhancing anti-fraud controls, what was the return on that investment? How much money did we save in terms of frauds that never happened?
When the ACFE published the first Report to the Nation on Occupational Fraud and Abuse 20 years ago, it was with the goal of helping our members answer these questions. We surveyed our members to gather information from cases of occupational fraud they had investigated, and we used that information to compile the first report, which offered quantifiable data on the frequency of various schemes, the costs associated with those schemes, the characteristics of the perpetrators and the qualities of the victims. This was statistical information our members could use to demonstrate the significant threat of occupational fraud and the value of implementing anti-fraud programs.
In March of 2016, the ACFE published its ninth edition of the Report to the Nations, our most complete study yet. In addition to information on costs, schemes, perpetrators and victims, readers can find data on the most effective ways to detect occupational fraud, benchmark their own anti-fraud efforts against those of other companies or agencies, see the relative risk of different types of occupational fraud within the various parts of their organization or within their industry as a whole, and find information measuring the effectiveness of various anti-fraud controls. We encourage all members to read the report, and to share it with their colleagues, clients, employers and anyone else who has an interest in learning about occupational fraud.
The ACFE has received a great deal of praise for the research contained in the Report to the Nations. It is perhaps the most widely quoted study on occupational fraud anywhere in the world, and it has contributed greatly to the general body of knowledge in the anti-fraud field. We are proud of the report and the positive impact it has had for ACFE members throughout the world.
What is often overlooked in the praise for the work our research team does is the generosity of the CFEs who supply the case information that goes into the report. Our study only succeeds because thousands of CFEs from allover the world take the time to submit detailed information about cases they’ve investigated. These CFEs are not compensated for their submissions and they are not required to provide them. Those who provide case information for our study do so out of a desire to serve the greater good and advance the common body of knowledge for everyone in our profession. It says something important about the quality of our association when so many of its members are willing to share their time and knowledge in order to support a project like the Report to the Nations. Speaking on behalf of the ACFE staff, we are all deeply grateful to all of the CFEs who contributed to our study and we consider ourselves very lucky to work for, and be a part of, the Association of Certified Fraud Examiners.
You can read more about ACFE courses, events and products can help you uncover fraud in our latest Resource Guide.
