The Top 8 Concealment Methods Used by Fraudsters

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ACFE STAFF

An act of fraud rarely occurs without subsequent acts to hide it. In the time after a fraud takes place, perpetrators are working in multiple ways to either circumvent controls or take advantage of a lack of controls.

The median duration for all of the fraud cases in the ACFE's 2018 Report to the Nations was 16 months, and frauds that last over 60 months are more than 20 times as costly as those that are caught in the first six months. The data also indicates that fraudsters tend to start small and increase their frauds rapidly over the first three years. Thus, it is incredibly important for organizations to implement proactive fraud detection mechanisms to catch frauds quickly and minimize their damage. One way to do this is by deterring and managing the ways people can hide their frauds.

As we all know, an act of fraud typically involves not only the commission of the scheme itself, but also efforts to conceal the misdeeds. Knowing what those efforts look like is crucial to proactively monitoring the possible areas where the concealment of fraud can occur.

As the report found, the top eight concealment methods used by fraudsters that anti-fraud professionals should be aware of are:

  1. Created fraudulent physical documents; 55%

  2. Altered physical documents; 48%

  3. Created fraudulent transactions in the accounting system; 42%

  4. Altered transactions in the accounting system; 34%

  5. Altered electronic documents or files; 31%

  6. Destroyed physical documents; 30%

  7. Created fraudulent electronic documents or files; 29%

  8. Created fraudulent journal entries; 27%

Understanding the methods fraudsters use to cover their crimes can help organizations better design prevention mechanisms and detect the warning signs of fraud. This also illustrates the importance of implementing internal controls like the segregation of duties, a chain of command of documents that is strictly followed and regular reviews or audits of processes. 

Find more insight from the ACFE's 2018 Report to the Nations, as well as shareable infographics at ACFE.com/RTTN.