We were proud to join the Association of Certified Fraud Examiners’ (ACFE) 2019 Fraud Awareness Week as an official supporter. Saturday, November 23, 2019 will conclude a weeklong effort by the ACFE to minimize the impact of fraud by promoting anti-fraud awareness and education.
Companies lose an estimated 5% of their revenue annually as a result of occupational fraud, according to the 2018 ACFE Report to the Nations. It turns out, the risk of occupational fraud is much higher than many managers and leaders realize. Each case results in a median loss of $130,000 and with cases lasting a median of 16 months, fraud is something organizations of all sizes must take care to detect and deter.
In support of Fraud Week, we produced several informational articles, which are summarized here for easy reference:
How Technology is Helping in the Fight Against Fraud
The key to catching fraudulent actions before real damage is done is having systems in place to ferret out anomalies and report suspicious activities early. This means being equipped with tools like automatic monitoring, artificial intelligence, and anomaly detection protocols. For instance, surprise audits and data monitoring are a powerful combination in reducing fraud loss. Though only 37% of the companies examined in the ACFE study used them, those that did got fraud cases under control in approximately half the time and reduced fraud losses by more than 50%.
As part of the 2019 International Fraud Awareness Week, the Association of Certified Fraud Examiners (ACFE) distributes information and training to help anti-fraud professionals reduce the incidence of fraud and white-collar crime. A recent ACFE publication, 5 Fraud Tips Every Business Leader Should Act On, spells out five ways organizations can work to prevent and minimize fraud in the workplace. We’ve paired their recommendations with the research-based actions you can take to achieve these aims.
Losses from occupational fraud topped $7 billion in 2017, according to the Association of Certified Fraud Examiners’ (ACFE) most recent global study on occupational fraud and abuse, 2018 Report to the Nations. The median loss for all cases in the study was $130,000 USD, yet a full 22 percent of companies lost $1 million or more. To add insult to injury, only 15 percent of businesses that experienced fraud were able to fully recover their losses.
These seven fraud prevention strategies, drawn from the 2018 Report to the Nations by the Association of Certified Fraud Examiners (ACFE), will go a long way in fortifying your organization against the conditions that can facilitate occupational fraud at the workplace.
Many times, occupational fraud is committed by an employee or third-party partner who is experienced and trusted. Which of your employees—or leaders—is likely to flip over to the dark side? And why?
The 2018 Report to the Nations on Occupational Fraud and Abuse provides valuable information on these questions. This tenth edition of the Report, published by the Association of Certified Fraud Examiners (ACFE), is based on data from almost 2,700 cases of occupational fraud submitted by Certified Fraud Examiners (CFEs) worldwide. While not a random sample, the selected cases aggregate a huge amount of descriptive information that managers can use to evaluate their own organizations.
Here are a couple of key takeaways about the question of “Who?” in the fraud equation:
Anyone and everyone is a potential fraudster, but organizations must be aware that those in long-tenured, high authority positions can present a greater risk. Fraud prevention programs have to recognize this fact and plan extensive monitoring and controls to mitigate the risk.
Identifying a potential fraudster can be difficult. Background checks can help, but some previous fraudsters may not have bad information in the public record. The fraud triangle of “red flag” factors on issues of motivation and opportunity may help to identify risks.
Longer-tenured, higher-authority = greater risk.
One hard lesson from the Report—which is consistent over all 10 editions—is that owners and executives are a big risk in terms of fraud. They commit only one-fifth of the total frauds, but the median loss when they do go off the rails is $850,000, more than 5 times greater than managers ($150,000 median loss) and 17 times greater than regular employees ($50,000 median loss). One reason people with greater authority cause more damaging frauds is that they are able to evade detection longer: owner/executives hide for 24 months; ordinary employees only 12.
Owners and executives have the most access to the organization’s assets, and also have authority over some of the controls and processes established to deter fraud. They are also more likely to collude with others, and their frauds are more likely to be discovered by an external auditor or law enforcement. This argues for putting a risk management plan in place before fraud occurs, and to make sure the plan includes provisions for monitoring executive behavior as well as extensive controls on regular operations.
47% of occupational frauds reported were perpetrated by people with six or more years tenure with the organization. These long-term employees also stole far more money. In aggregate, the long-term employees caused much higher total losses than those who were with the organization less than six years. The length of tenure increases loss in all types of jobs, but the higher the authority the greater the loss. Both authority and tenure operate to increase the losses.
Follow the money.
By department, the data tends to say, ‘follow the money’. The two biggest threats come from upper management and accounting (with the high authority individuals by far the bigger threat). The single most common type of fraud is corruption, which strikes hardest in executive/upper management, and purchasing. Both of these departments are likely to be linked to both internal and external networks, which may foster systematic (often collusive) corruption.
Occupational fraud is estimated to have cost over $7 billion dollars in 2017. The warning to organizations is clear. There is no absolute certainty about the likelihood of any given employee committing a fraud. The organization’s best response is systematic fraud prevention aimed at all levels and functions of the organization.