International Fraud Awareness Week begins next week. The point of Fraud Week, sponsored by the Association of Certified Fraud Examiners (ACFE), is to raise the visibility of occupational fraud and abuse, and to remind organizations to review and improve their fraud prevention and detection capabilities.
In case you’re thinking fraud is not an issue in your organization, you should know that extrapolating from actual fraud cases examined in 2016 and reported to ACFE, organizations worldwide lose 5% of topline revenue to fraud. Virtually every type of organization from business, government to non-profit sectors is vulnerable to fraud.
How much do you know about occupational fraud and abuse with respect to your organization? Prepare for Fraud Week by trying your hand at these questions based on ACFE’s 2016 Report to the Nations on Occupational Fraud and Abuse (answers are below):
1. Occupational frauds are most often detected in which way:
a) By accident b) Through a management review c) By a tip d) By an internal audit
2. The median duration of occupational fraud is:
a) 3 months b) 6 months c) 18 months d) 24 months
3. About what percentage of occupational frauds are committed by 2 or more in collusion?
a) 19% b) 37% c) 48% d) 62%
4. What is the median loss to fraud?
a) $110,000 b) $150,000 c) $225,000 d) $1,000,000
5. The proportion of the 2016 fraud cases in the U.S. committed by owners or executives is:
a) 5% b) 10% c) 15% d) 20%
6. The median loss to fraud for companies with less than 100 employees as compared to companies with 10,000+ employees are:
a) Much smaller b) Proportionately smaller c) About the same d) Larger
7. The largest proportion of fraud is perpetrated by employees who have been with the organization:
a) Less than 1 year b) 1 to 5 years c) 6 to 10 years d) More than 10 years
Answers
c) By a tip. In 2016, tips were the most common detection method by a wide margin, accounting for 39.1% of cases. Hotlines were especially effective in generating tips.
c) 18 months. The longer the fraud continues undetected, the higher the cost. 20% of the cases in 2016 were undetected for 36 months or longer, and cases that endured for 60+ months caused a median loss of $850,000.
c) About 48%. In cases of fraud by collusion, the cost of the crime increased as more people were involved. A single fraudster caused a median $85,000 in losses, while a collaboration of 5 or more cost $833,000.
b) $150,000 was the median loss. However, the average loss per case was $2.7 million, indicating that losses due to occupational fraud can be very significant.
d) About 20%. Median loss due to fraud by U.S. owners or executives was far higher at $500,000 than for managers ($150,000) or employees ($54,000). Part of the difference is due to the fact that owner or executive fraud went undetected longer.
c) About the same. In 2016, the median loss of a fraud case in an organization of less than 100 employees was $150,000, the same as for an organization with 10,000 or more employees. The relative impact of the loss was obviously much greater for the smaller organizations.
b) 1 to 5 years. Employees are more likely to commit a fraud if they are familiar with the controls and systems in place, or when something in their circumstances changes over time. However, the median loss for a fraud increases regularly as the employee’s tenure lengthens.
You can learn a lot about occupational fraud and abuse by reading the 2016 Report to the Nations. Better yet, you can begin to see how you can improve your fraud prevention program to avoid being one of the cases in the Report.
The end of the year is a great time to reflect and with that, we like to share our most-read articles of the year. This year’s top articles highlight a strong focus on workplace violence risk management, including active assailant concerns. More than ever, prediction, preparation, and prevention measures are needed to keep each workplace safe. Take some time to read through our top risk management articles from 2016 and plan for a safer and more productive 2017.
1. [Infographic] How to Address the Threat of an Active Assailant Incident in Your Organization
Each and every employee and community member deserves to feel safe. OSHA requires it, labeling it as an organization’s responsibility to provide a safe workplace. Tragically, with a growing number of active assailant incidents happening all around the country, this threat is more relevant than ever before. Over a two-year span, 26 states experienced 40 active assailant incidents, resulting in more than 230 casualties.
2. Building a Culture of Compliance around BSA/AML – Guidance from FinCEN
In simpler times, the Bank Secrecy Act (BSA) regulated the Anti-Money Laundering (AML) activities of banks, as the name implies. In our globalized and networked world, it has expanded to cover financial institutions ranging from the biggest banks to mom and pop check cashing, or money transfer operations running out of storefronts in a mall. The Financial Crimes Enforcement Network (FinCEN) has launched actions against businesses across this spectrum for violations of BSA/AML requirements.
Every two years, the Association of Certified Fraud Examiners (ACFE) performs and publishes research on worldwide organizational fraud. These reports have rearranged the landscape on organizational fraud by providing a bedrock data-based description of the incidence, characteristics and impact of fraud on organizations of all types.
The 9th report in this series, the 2016 Report to the Nations on Occupational Fraud and Abuse, continues and expands the information available to organizational managers to help shape their risk management strategies to combat organizational fraud. With the sound methodology repeated by these studies over time, some solid trends have been established, but we can also see some emerging threats.
Here are 17 facts that can help you to understand and respond to the threat of organizational fraud in your organization:
This week is International Fraud Week, an annual awareness effort organized by the Association of Certified Fraud Examiners (ACFE) to shine a spotlight on fraud. It is estimated that fraud costs approximately 5 percent of annual revenue for organizations worldwide. The seriousness of the global fraud problem is why, throughout the year, we provide our clients and other organizations with tips and information to fight fraud and safeguard businesses and investments from the growing fraud problem.
Here we share 6 of our most-read fraud-related resources:
Our latest whitepaper, Occupational Fraud: A Hidden Killer of Organizational Performance, provides an in-depth look at the complexities of occupational fraud, so you can prevent, detect, minimize, and/or recover from it.
The value of the fraud triangle is that it helps us to look at the objective factors that must be present for fraud to occur. Recognizing these objective factors helps to define actions you can take to help prevent fraud, partly through organizational policy controls and partly through managing the relationship with employees to encourage openness and trust.
In the 2016 update to the invaluable Report to the Nations on Occupational Fraud and Abuse, the Association of Certified Fraud Examiners (ACFE) analyzed 2,410 cases of occupational fraud that cost more than $6.3 billion in losses. Extrapolate this to the total number of organizations at risk and you can understand why ACFE has found in report after report that about 5% of top line revenue is lost to fraud every year, worldwide (download the ACFE The Staggering Cost of Fraud PDF).
Unlike the human capital risks of complacency or turnover, occupational fraud is an intentional act to steal from the organization. It involves a conscious attempt by someone within or linked to the organization to seek “personal enrichment through the deliberate misuse of misapplication of the employing organization’s resources or assets” (ACFE).
Needless to say, fraudsters have every incentive to remain hidden, so a well-executed fraud can go on for years. The intentional, hidden nature of fraud puts the emphasis in risk management on identifying potential fraudsters (preferably before you hire them) and limiting and monitoring the opportunities for fraud.
