Is Your Industry a Fraud Hot Spot?

By Lowers & Associates,

Thanks to the Association of Certified Fraud Examiners (ACFE), we know quite a bit about organizational fraud and abuse by way of its annual Report to the Nations. The data behind these annual reports is based on actual cases researched by fraud examiners and includes a standard set of measures across cases.

One part of the data that may be interesting to you is the variation of fraud and abuse across types of industries. ACFE has produced an infographic based on the 2016 report titled How Much Does Fraud Cost Your Industry? that summarizes part of the data, and we provide some additional background here.

Banking and Financial Services Top the Charts

Banking and financial services accounts for almost 17% of the total cases reported, with government and public administration, manufacturing, health care, and education all experiencing more than 5% of the cases, with retail close behind at 4.8%.

On the other end of the spectrum, communications, mining, wholesale trade, arts and entertainment, utilities and real estate each accounted for less than 2% of cases. To some extent, these numbers reflect the size of the industry, and specifically which industries are most likely to engage fraud examiners. However, the types of opportunities for fraud and abuse (the report refers to these as schemes) also vary by industry and will correlate with actual criminal activity.

Opportunities or schemes are defined by the type of fraud committed. Many of these involve financial transactions within the organization, including billing, check tampering, expense reimbursements, financial statement fraud, payroll, and register disbursements. Others are direct thefts of valuable goods or cash, like skimming, cash theft, non-cash theft, and cash larceny. Among these schemes, billing fraud is the most frequently reported, reflecting the fact that this is an activity virtually every organization performs—it is truly an equal opportunity fraud.

Corruption Crosses Industry Lines

Somewhat surprising is that the most prevalent scheme of all is corruption—it is the single most common fraud for most industries. Corruption accounts near or slightly above 50% of the reported cases in mining, transportation, manufacturing, oil and gas, and technology, and is not less than 20% of cases in any industry except professional services. Since manufacturing is also a higher risk industry overall, its level of fraud by corruption is very high, with 93 cases in 2016. Other industries with a high number of corruption cases include banking and financial services (138) and government and public administration (88).

The median cost of fraud varies from a low of $62,000 in education to a high of $500,000 in mining. For the other industries with most reported cases, banking and financial services was $192,000, government $133,000, manufacturing $194,000, and health care was $120,000. The costs are significant in all industries, indicating that anti-fraud measures are well worthwhile across the board.

To get a closer look at fraud in your industry, take a look at the 2016 Report to the Nations on Occupational Fraud and Abuse.

16 Fraud Facts to Fuel Your 2016 Prevention Planning

By Lowers & Associates,

fraud week

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

It’s a Wrap: 2014 International Fraud Week

By Lowers & Associates,

fraud week supporter

Saturday wrapped up Fraud Week, the Association of Certified Fraud Examiners’ (ACFE) international week of anti-fraud awareness. We are extremely proud to have joined hundreds of organizations around the world to support this effort.

The risk of organizational fraud is much higher than many managers and leaders realize, as shown in the Report to the Nations research series sponsored by the ACFE. With a median loss of $145,000 in cases reported in 2013, fraud presents a risk to all organizations comparable to any other human risk factor.

In support of Fraud Week we produced several informational pieces, which are summarized here for easy reference:

10 Facts About Fraud

This visual guide summarizes 10 key findings from the ACFE 2014 Report to the Nations and offers some tips to develop an effective fraud prevention program. Highlighted is the amazingly high incidence of fraud and counter measures that work to reduce the probability and cost of fraud. Get your copy of the guide here.

Risk Mitigator—The Fraud Week Edition 

The Risk Mitigator is our monthly e-newsletter for risk managers and others concerned about organizational risk of all kinds. To honor International Fraud Awareness Week, we distributed a special edition of the newsletter highlighting some of our top fraud-related articles from 2014. These articles link prevention to the basic causal factors of fraud, and offer specific strategies and tactics organizations can use in designing prevention programs. View the special edition here.

How to Foil the Fraudster in Your Organization

Published during Fraud Week, this blog post offers tips for connecting the findings in the ACFE research with fraud detection and prevention strategies. The characteristics of fraudsters show that they will blend into the background of most organizations—they can be people at any level, with long tenure, and access to financial resources. The best response to this threat is to identify where the opportunities for fraud exist, and create controls or structures that make it harder to commit fraud and/or easier to detect.

Essential Elements of an Effective Whistle-Blower Program

One of the most striking findings in the 2014 Report to the Nations is that fully 40% of frauds were detected by a tip, often from someone within the organization. This makes a whistle-blower program almost mandatory for organizations that are serious about fraud prevention. This blog post explores the issues in designing an effective program, including how to overcome the natural reluctance of one employee to report on someone who may be a friend as well as a co-worker.

Every organization is at risk of fraud. And every organization can lower that risk with a well-structured fraud prevention program. Request a meeting with Lowers Risk Group to find out more about how your organization can fight fraud.

  Category: Fraud Prevention
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