Occupational fraud is a common problem. It is even more common than most businesses know, since many incidents are never even detected. When fraud hits, a business can be devastated by the financial costs, along with damage to morale and reputation. The costs are massive.
The 2016 Association of Certified Fraud Examiners (ACFE) report cites more than $6.3 billion in damages from a survey set of 2,410 businesses. Global losses from 2015 are projected at more than $3.7 trillion, with median losses around $150,000 per incident.
A recent report out from the Association of Certified Fraud Examiners (ACFE) confirms a growing and alarming trend – occupational fraud continues to rise, and with it businesses are ravaged by massive costs. The multi-layered impact of occupational fraud affects nearly every industry in every region worldwide – from the US and Canada, throughout Europe, Asia, the Middle East, and into Africa.
It is estimated that approximately 5% of a business’ annual revenues are lost when occupational fraud hits, with many cases never even detected – so the true cost is ultimately unknown. The 2016 ACFE report cites more than $6.3 billion in damages from the occupational fraud cases studied worldwide, from a survey set of 2,410 businesses. Global losses in total are projected at more than $3.7 trillion.
The Sting of a Scheme
Occupational fraud typically covers three categories: asset misappropriations like theft, skimming, or fraudulent disbursements; corruption: including bribery, conflicts of interest, extortion; and financial statement fraud: misreporting as overstatement or understatement. While asset misappropriations are the most common, representing over 80% of cases, the median loss is reported at around $125,000. Comparatively, when financial statement fraud is involved (less than 10% of all cases) the impact can destroy a company, with a median loss of nearly $1M.
As we look toward 2016, we thought it might be useful to get a quick big picture on organizational fraud for context. We have been posting about the causal factors driving fraud and urging you to develop an effective risk-based prevention program. Now, here’s the why: 16 facts about fraud drawn from the 2014 ACFE Report to the Nations that should make it relevant to you. … Continue reading
Ordinary people can do extraordinary things, including committing fraud. The question is, what motivates an ordinary person to morph into a fraudster?
“Pressure,” or motivation, is one of the three causal factors of Donald Cressey’s Fraud Triangle, along with opportunity and rationalization. A quick summary of the theory is that a person commits fraud when under difficult or threatening personal circumstances (pressure) and he or she has access to a valuable target for personal gain (opportunity) that they can justify internally (rationalization).
The pressure factor in fraud risk is idiosyncratic and dynamic. Individuals’ circumstances are as highly varied as their perceptions and reactions are to them. The main thing is that the propensity for fraud emerges when a person’s circumstances create perceived pressure that leads him or her to exploit an opportunity when it appears. In other words, every person in every organization has the potential to commit fraud under the right combination of circumstances. … Continue reading
Donald Cressey’s Fraud Triangle historically has received a lot of attention during the ACFE’s Fraud Week and for good reason. It supplies a useful set of analytical distinctions in its three components—opportunity, rationalization, and pressure or motivation—that lead us to look at specific relevant factors that affect fraud in organizations. Understanding the causal forces at work helps us to take steps to address them.
The opportunity for fraud is the most straightforward causal factor for organizations to address because it is rooted in the organization itself. Unlike motivation or rationalization, opportunity does not depend on the potential fraudster’s personal circumstances or state of mind. Therefore, opportunity reduction works regardless of whether or not a potential fraudster exists in the workforce at any given time.
Opportunity has long played a part in the general policy of crime prevention. For example, in the 1980’s, a prominent theory was Crime Prevention through Environmental Design (CPTED). The aim was to create living and working spaces that removed opportunities for crime. In turn, CPTED was based on Jane Jacobs’ insight that safer cities were those that had vibrant, people-filled public spaces with lots of eyes on the scene. The idea that opportunity can be managed to reduce the incidence of crime, regardless of how potential criminals think or behave, has a solid pedigree. … Continue reading
