Organizations across the globe are losing an estimated 5 percent of their annual revenues to occupational fraud, according to a new report from the Association of Certified Fraud Examiners, with total losses estimated at about $3.5 trillion.
The median loss caused by the occupational fraud cases in the ACFE study was $145,000. Nearly one-fourth (24 percent) of the cases caused losses of at least $1 million.
The frauds in the study, ACFE’s 2014 Report to the Nations on Occupational Fraud and Abuse, lasted a median of 18 months before being caught, and in some cases lasted years. Occupational fraud is far more likely to be detected by a tip than by any other method.
More than 40 percent of all cases were detected by a tip—with the majority of them coming from employees of the victim organization.
Organizations with hotlines were much more likely to catch fraud through tips, which are the most effective way to detect fraud. These organizations also experienced frauds that were 41 percent less costly, and they detected frauds 50 percent more quickly.
The presence of anti-fraud controls generally reduced fraud losses and the duration of the fraud . Fraud schemes that occurred at organizations that implemented some of the most common anti-fraud controls were significantly less costly and were detected much more quickly than frauds at organizations lacking these controls.
While the ACFE found fraud trends differing slightly from region to region, most of the trends in fraud schemes, perpetrator characteristics and anti-fraud controls were similar no matter where the fraud occurred.
High-level fraudsters did the most damage to their organizations. The median loss among frauds committed by owners and executives was $500,000, considerably higher than the median loss of $130,000 for frauds committed by managers and $75,000 for frauds committed by other employees.
Collusion helps employees evade independent checks and other anti-fraud controls, allowing them to steal larger amounts. The median loss in a fraud committed by a single person was $80,000, but as the number of perpetrators increased, the losses rose significantly. In cases with two perpetrators the median loss was $200,000, for three perpetrators it was $355,000 and when four or more perpetrators were involved the median loss exceeded $500,000.
Small businesses face increased risk from fraud. The smallest organizations in the study suffered disproportionally, with a median loss of $154,000—higher than the overall median loss for fraud cases in the study ($145,000). These organizations typically employ fewer anti-fraud controls than their larger counterparts, which increases their vulnerability to fraud.
The banking and financial services, government and public administration, and manufacturing industries continue to have the greatest number of cases reported in the ACFE’s research, while the mining, real estate, and oil and gas industries had the largest reported median losses.
The report also details findings such as how organizations were affected based upon industry, how the implementation of anti-fraud controls affected exposure to fraud, the breakdown of fraud statistics by geographical region and the most common behavioral traits observed among fraud perpetrators.
Information from Certified Fraud Examiners in more than 100 nations was included in the report, which the ACFE has been issuing on a biannual basis since 1996.
The 2014 Report to the Nations is available for download online at www.ACFE.com/RTTN.
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