Why We Do What We Do: The ACFE’s Global Fraud Survey

GUEST BLOGGER

John Warren, J.D., CFE
ACFE VP and General Counsel

 "The average corporate fraud lasts up to 18 months before detection and involves more than $140,000.” - Walt Pavlo, “Forget NSA Surveillance, Your Company is Watching You," Forbes.com, June 26, 2013

"Research shows that worldwide, payroll fraud comprises 8.5 per cent of occupational fraud and costs an average of £46,195 per payroll fraud case." - UK National Fraud Authority, Annual Fraud Indicator, March 2012

"… It's not surprising that fraud in the workplace increased during the economic crisis and recession. The median loss tied to occupational fraud is $160,000 … so the issue is something about which many companies are rightfully concerned. Small businesses are especially vulnerable." - The Huffington Post, June 5, 2012

When you read a news story about a fraud case or a report about some aspect of financial crime, you’ll often see the writer reference statistics like the ones above. You may not think a lot about the stats directly, but they give the story context and help you understand the issues relating to the subject in a more meaningful way. 

What these quotes have in common – aside from being about the subject of fraud – is they were taken from the ACFE’s Report to the Nations on Occupational Fraud and Abuse. That study, which is based on actual cases investigated by CFEs, has become one of the go-to sources for major media outlets looking for statistical data on occupational fraud. It’s also frequently cited by academics and researchers as resource material for their own fraud studies, and of course it’s used every day by ACFE members to educate their clients about fraud risk. 

In some ways, the Report to the Nations is the most important educational resource the ACFE produces. It not only provides useful information to ACFE members, but it also helps us show those outside the anti-fraud community the staggering losses that occupational fraud imposes on our economy. Let’s face it; if we as anti-fraud professionals are going to be effective at our jobs, the first thing we need to do is convince those who hire us that it’s worth investing and supporting us in what we do. The Report helps us make the case that our work is critically important.

The Report is only made possible by the contributions of CFEs throughout the world who take the time to fill out the Global Fraud Survey and tell us about one fraud case they’ve investigated in the last two years. That survey was recently distributed to all CFEs, and if you haven’t already filled it out I strongly encourage you to do so here. It’s one of the most important things you can do as a CFE to help support the ACFE mission. (Please note, we won’t ask you to identify any parties to your case, and your response will be kept confidential). 

Whenever I see the Report quoted in the media or cited by someone doing fraud research, I think about all the CFEs who took the time to help us assemble the data that went into that study, and I’m proud to be a part of an organization whose members have so much knowledge and are so ready to share it. The next time a stat like those above show up in a story you’re reading, I hope you’ll remember that the information came from your colleagues at the ACFE – or better yet, I hope you’ll be able to pat yourself on the back for having contributed your own case to the study.   

Take the Global Fraud Survey.

The Most Effective Controls in Limiting Fraud Losses

GUEST BLOGGER

John Warren, J.D., CFE
ACFE Vice President and General Counsel

One of the most important things we try to accomplish with our global fraud study, the Report to the Nations, is to identify key characteristics about organizations that have been victimized by occupational fraud. Although every business is vulnerable to fraud, the more we can learn about organizations that suffered frauds in the past, the more information we will have to prevent occupational fraud or at least limit its impact in the future.

Perhaps the most important victim data contained in the Report to the Nations is the information we gather on anti-fraud controls. We ask each of our respondents to tell us which, if any, of 16 common anti-fraud measures were utilized by the victim organizations while the frauds were occurring. We then compare the losses based on whether a particular control was or was not present. For example, in 2012 we found organizations that used a hotline experienced a median loss of $100,000 per occupational fraud case, while organizations that did not use a hotline had a median loss of $180,000.  This analysis gives us a general indication of the impact various anti-fraud controls have in limiting fraud losses. We can say, for instance, that the presence of a hotline was associated with a 44.4 percent lower median fraud loss.  

In the table below, we’ve presented the results of this analysis for each edition of the Report to the Nations dating back to 2008. For each anti-fraud measure, you can see the reduction in fraud losses it was associated with, along with its ranking relative to other controls.[1]One interesting thing to note is that every one of these controls was associated with lower fraud losses in all three editions of the Report.  

The key information in this table is contained in the yellow shaded columns at the right, where we have combined the results from all three editions of the Report. This data comprises more than 4,100 total cases of occupational fraud. The two bold columns show the average loss reduction and overall ranking of each control for the three combined studies. We see here that hotlines have ranked No.1 among all anti-fraud measures in this analysis, typically being associated with a 54.5 percent reduction in fraud losses.  Hotlines were followed by employee support programs, surprise audits, fraud training for managers and executives, job rotation/mandatory vacation, and fraud training for employees.  Every one of those six anti-fraud controls was associated with at least a 45 percent reduction in fraud losses, and all six controls ranked in the top 8, respectively, in each edition of the Report. 

In the two far-right columns of the table above, we have presented the average rate of implementation for each control.  In other words, this shows what percentage of victim organizations were utilizing each control at the time the frauds occurred. We can clearly see that the six most effective anti-fraud measures all scored poorly in terms of implementation. With one exception, these controls all ranked 9^th or lower in terms of implantation rate, and only two of them were used by more than half of the organizations in our studies.

What this data seems to indicate is that the anti-fraud measures which tend to have the greatest impact on fraud losses are being under-utilized. Every control in the table above is important and they all have an impact not only in limiting fraud losses but also in preventing them. But the six highest ranking anti-fraud controls, according to our study, are utilized by an unacceptably low number of companies and agencies. 

Every organization is, at some point, vulnerable to occupational fraud. Ideally we would prevent all such frauds from ever occurring, but sooner or later a fraud will occur, and when it does, the best thing we can do is catch it as quickly as possible and limit the financial impact of the crime. We hope organizations that are serious about reducing their exposure to occupational fraud will consider this data and in future studies we will see the implementation rates for hotlines, support programs, surprise audits, fraud training and job rotation increase substantially.

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[1] “Formal Fraud Risk Assessments” was not a category prior to the 2012 Report.

The ACFE Needs You for its Biennial Global Fraud Study

PRESIDENT’S BLOG

James D. Ratley, CFE
ACFE President and CEO

There is rarely an event or seminar I attend that a fellow anti-fraud professional doesn’t share with me the value that the ACFE’s Report to the Nations on Occupational Fraud and Abuse recently provided to a certain case or investigation. This publication is one of the most, if not the most, popular resources we have the privilege of working on here at the ACFE.

The Report, now in its sixth edition, remains one of the most widely-quoted sources on white-collar crime statistics in the world. That is why we need your help to make the seventh edition, set to be released next year, as valuable as ever. We are asking all CFEs to take the 2011 Global Fraud Survey, a study that will serve as the foundation for the 2012 Report to the Nations.

After including statistics from CFEs all over the world last year, the Report’s significance has grown to include even more applicable statistics for fraud-fighters worldwide. The information contained in this Report is invaluable to those who seek to deter, detect, prevent or simply understand the global economic impact of occupational fraud.

Call it an early New Year’s resolution: contribute to the industry’s most insightful tool in the fight against fraud by sharing your expertise in the 2011 Global Fraud Survey. Also, to thank you for your time, you will receive two hours of CPE credit and the option to view an exclusive webinar with the survey results next year.