Page 289 - ACFE Fraud Reports 2009_2020

Control Weaknesses that Contributed to Fraud
We also asked survey respondents to identify which of several common issues they considered to be the primary factor that
allowed the fraud to occur. A lack of internal controls, such as segregation of duties, was cited as the biggest deficiency in 38%
of the cases. In more than 19% of the cases, internal controls were in place but were overridden by the perpetrator or perpetra-
tors in order to commit and conceal the fraud. Interestingly, even though hotlines are consistently the most effective detective
control mechanism, and even though less than half of the victim organizations had a hotline in place at the time of the fraud, a
lack of reporting mechanism was the control deficiency least commonly cited by the CFEs who participated in our study.

Primary Internal control Weakness Observed by cFEs

Lack of Independent
Checks/Audits Lack of Employee
Lack of Competent 5.6% Fraud Education
Personnel in 1.9%
Oversight Roles
6.9% Lack of Clear Lines
of Authority
Poor Tone at the Top 1.8%
8.4%

Lack of Lack of Reporting
Management Mechanism
Review 0.6%
17.9% Lack of Internal
Controls
Override of Existing 37.8%
Internal Controls
19.2%

To further examine the unique challenges faced by small businesses, we compared internal control weaknesses at orga-
nizations with fewer than 100 employees to those at larger organizations. As shown in the chart at the top of page 46, the
small organizations had a noted deficiency in internal controls that allowed fraud to occur. In nearly half of the cases at small
companies, a lack of internal controls was cited as the factor that most contributed to the occurrence of the fraud. Control
overrides were markedly less common at small companies than at their larger counterparts, most likely because the lack of
controls in so many small organizations meant there was nothing to override.

We were also interested to see what factors led to the success of the largest frauds in our study — those causing losses of
more than $1 million. Clearly, one deficiency is much more common in the million-dollar frauds than in smaller frauds: a poor
tone at the top. This weakness was cited nearly three times as often in million-dollar cases as in cases with smaller losses.

2010 RepoRt to the NAtioNs ON OccuPATIONAl FRAUD ANd AbuSE | 45