Fewer fraud cases going to law enforcement: ACFE

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There has been a sharp drop in the percentage of fraud cases that get handed over to law enforcement, the Association of Certified Fraud Examiners reported Tuesday.

In the ACFE’s biennnial Report to the Nations, the group noted that between January 2016 and October 2017, 58 percent of cases were referred to law enforcement, down sharply from 69 percent in 2008. In contrast, the rate of fraud cases that resulted in a civil suit has stayed relatively steady over the same period, at about 23 percent.

The top reasons cited for not referring fraud cases to law enforcement were fear of bad publicity (38 percent), internal discipline being considered sufficient (33 percent) and concern it would be too costly (24 percent).

“While our data doesn't point to a specific explanation for this trend, we think it is worth highlighting because of the negative consequences it can have when fraudsters are not prosecuted,” said ACFE vice president and general counsel John Warren, one of the report's co-authors, in a statement. “This enables them in many cases to move on to other employers and repeat their crimes.”

The ACFE also found that the typical employee fraud case causes a loss of $130,000 and lasts 16 months. Losses perpetrated by male fraudsters were 75 percent bigger than losses caused by female fraudsters, while internal control weaknesses helped facilitate nearly half the frauds.

The study analyzed 2,690 cases of occupational fraud in 125 countries that were investigated between January 2016 and October 2017. It found that they led to more than $7 billion in losses, and 22 percent of the cases caused losses of over $1 million. The median duration of the fraud scheme was 16 months.

Tips were by far the most common initial detection method for catching the fraudsters, at 40 percent, followed by internal audit at 15 percent and management review at 13 percent. Employees provided over half the tips, while nearly one-third came from outside parties. Organizations with hotlines detected fraud more often, with 46 percent of cases detected by tips at organizations with hotlines, compared to 30 percent of cases detected through tips at organizations with no hotline.

Owners and executives accounted for only 19 percent of the fraud cases analyzed, but they caused median losses of $850,000. Fraudsters who had been with a company longer stole twice as much. Those with five years' tenure caused $200,000 in median losses, compared to $100,000 for fraudsters with less than five years' tenure.

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