Fraud Can’t Happen Here! Really?

By Mark Lowers,

If you are like many business owners and managers, you are certain there are no fraud problems in your organization. Are you really sure?

Every two years, the Association of Certified Fraud Examiners (ACFE) publishes a new version of their “Report to the Nations” (here’s the 2014 version) on the incidence and costs of organizational fraud. In every report they find that about 5% of top line revenue is lost worldwide to thefts by employees, owners, or partners with access to an organization’s resources.

The aggregate monetary cost of these losses is staggering, and does not even estimate the on-going costs of damages to reputation. ALL types of organization are vulnerable, and ALL types of employees and owners perpetrate these thefts. The only distinctive pattern in the data year after year is that fraud is a ubiquitous problem.

And yet, we often find organizations that have no preventative measures in place against fraud, and take no effective actions to detect it. This complacency is a common human trait: if nothing has happened in the past, nothing is going to happen in the future. Predicting the future based on historic patterns is a powerful tool, and it is often accurate. … Continue reading

“Red Flag” Behaviors of Occupational Fraud Perpetrators

By Lowers & Associates,

fraud perpetrators

Most crimes of occupational fraud are motivated, at least in part, by some kind of financial pressure. And while committing a fraud, the perpetrator will frequently display certain behavioral traits associated with the stress or fear of being caught.

These “red flags” are behavioral and system-based clues that can be picked up by attentive managers, colleagues, internal auditors, or subordinates. In turn, these clues can put an organization “on notice” that a trusted individual may be engaging in some form of improper or fraudulent conduct.

The Association of Certified Fraud Examiners (ACFE) in its 2012 Report to the Nations pinpointed the most common behavioral red flags associated with occupational fraud. The ACFE examined the frequency with which certain behavioral red flags were identified during a fraudulent scheme. … Continue reading

Why Corporate Culture Matters in Fraud Control

By Lowers & Associates,

fraud prevention program

U.S. organizations of all types lose about 5% of top line revenue to organizational fraud every year. We know that gets your attention, but what can you really do about it?

Simply put, proactive fraud prevention measures are necessary to limit organizational fraud. Many of the steps we can take are straightforward, including having published and promoted anti-fraud messages, encouraging and rewarding employee communications about fraud, and doing rigorous internal audits.

These steps are controls. Controls are familiar to every manager, especially in financial, auditing, or accounting occupations. They are procedural, orderly, systematic, and predictable.

Corporate culture is something different. It has an ethical dimension that goes beyond the imposition of objective controls. In a sense, it provides the environment of control.

This is why you need to care about the corporate culture: the environment of control is the context in which your procedural controls operate. If the environment of control is rotten, the procedural controls are irrelevant. … Continue reading

5 Key Components of a Fraud Risk Management Policy

By Brad Moody,

compliance

All organizations are vulnerable to occupational fraud, and that fraud costs an enormous amount of money ($652 billion a year in the US according to ACFE research as summarized in this occupational fraud infographic).  As a result, a comprehensive fraud risk management policy is an essential component of an overarching enterprise risk management plan.

Your fraud risk management policy stems from the risk analysis that must underlie the policy.  That is, identifying the concrete organization-specific fraud risks that must be mitigated.

Systematic planning and implementation across these five basic areas will put your fraud risk management program on the path to success.

1. Identify a “risk owner” in your organization.

Upper management must be engaged in policies aimed to mitigate risk.  Part of this is that responsibility has to be clear – wishful groupthink won’t cut it.  With respect to fraud risks in particular, a member of upper management should be charged to organize and carry out the risk analysis, including how identified risks should be managed.  As with every important management function, this function will include process definition, goal setting, measurement, and reporting on a timely basis. … Continue reading

Fraud Awareness Week Casts Spotlight on White-Collar Crime

By Lowers & Associates,

fraud awareness week

Lowers Risk Group Joins Ranks of Supporters for Nov. 3-9 Awareness Campaign

Organizations lose an estimated 5 percent of their annual revenues to fraud, according to a 2012 study by the Association of Certified Fraud Examiners (ACFE). To help shine a spotlight on this global problem, we are participating in International Fraud Awareness Week, Nov. 3-9, 2013, as an official supporter to promote anti-fraud awareness and prevention.

During Fraud Week, we will share articles and resources designed to help you understand best practices of fraud prevention and fraud risk management. Check back here often and be sure to follow us on Twitter, LinkedIn and Google+.

In its 2012 Report to the Nations on Occupational Fraud and Abuse, the ACFE found that:

  • Fraud schemes are extremely costly. The median loss caused by the occupational fraud cases in the ACFE study was $140,000. More than one-fifth of the frauds involved losses of at least $1 million.
  • Schemes can continue for months or even years before they are detected. The frauds in the study lasted a median of 18 months before being caught.
  • Occupational fraud is a global problem. Though some findings differ slightly from region to region, most of the trends in fraud schemes, perpetrator characteristics, and anti-fraud controls are similar regardless of where the fraud occurred.
  • Small businesses are especially vulnerable to occupational fraud. These organizations are typically lacking in anti-fraud controls compared to their larger counterparts, which makes them particularly vulnerable to fraud.
  • Tips are key in detecting fraud. Occupational frauds are much more likely to be detected by tip than by any other means. This finding reinforces the need for promoting awareness to foster an informed workforce.

For more information about increasing awareness and reducing the risk of fraud during International Fraud Awareness Week, visit FraudWeek.com.

About the Association of Certified Fraud Examiners

Founded in 1988, the ACFE is celebrating its 25th anniversary as the world’s largest anti-fraud organization and premier provider of anti-fraud training and education. Together with more than 65,000 members, the ACFE is reducing business fraud worldwide and inspiring public confidence in the integrity and objectivity within the profession. For more information, visit ACFE.com.