Page 409 - ACFE Fraud Reports 2009_2020

• Approximately 77% of the frauds in our study by accident. Further, although the use of inde-
were committed by individuals working in one of pendent financial statement audits was associated
seven departments: accounting, operations, sales, with reduced median losses and durations of fraud
executive/upper management, customer service, schemes, these reductions were among the smallest
purchasing and finance. of all of the anti-fraud controls analyzed in our
study. Consequently, while independent audits
• It takes time and effort to recover the money serve a vital role in organizational governance, our
stolen by perpetrators, and many organizations are data indicates that they should not be relied upon
never able to fully do so. At the time of our survey, as organizations’ primary anti-fraud mechanism.
58% of the victim organizations had not recovered
any of their losses due to fraud, and only 14% had • Many of the most effective anti-fraud controls are
made a full recovery. being overlooked by a significant portion of orga-
nizations. For example, proactive data monitoring
Conclusions and Recommendations and analysis was used by only 35% of the victim
• Occupational fraud is a universal problem for organizations in our study, but the presence of this
businesses around the globe. Although some slight control was correlated with frauds that were 60%
regional variations were noted in methods used less costly and 50% shorter in duration. Other less
both by fraudsters to commit their crimes and by common controls — including surprise audits, a
organizations to prevent and detect fraud schemes, dedicated fraud department or team and formal
the overall trends in our data are quite consistent, fraud risk assessments — showed similar associa-
both across borders and over time. This consis- tions with reductions in one or both of these mea-
tency underscores the nature and pervasiveness of sures of fraud damage. When determining how
fraud’s threat to all organizations. to invest anti-fraud dollars, management should
consider the observed effectiveness of specific con-
• The longer frauds last, the more financial damage trol activities and how those controls will enhance
they cause. Passive detection methods (confession, potential fraudsters’ perception of detection.
notification by law enforcement, external audit
and by accident) tend to take longer to bring fraud • The vast majority of occupational fraudsters are
to management’s attention, which allows the relat- first-time offenders; only 5% had been convicted
ed loss to grow. Consequently, proactive detection of a fraud-related offense prior to committing the
measures — such as hotlines, management review crimes in our study. Furthermore, 82% of fraud-
procedures, internal audits and employee moni- sters had never previously been punished or termi-
toring mechanisms — are vital in catching frauds nated by an employer for fraud-related conduct.
early and limiting their losses. While background checks can be useful in screen-
ing out some bad applicants, they might not do a
• Small businesses are both disproportionately good job of predicting fraudulent behavior. Most
victimized by fraud and notably under-protected fraudsters work for their employers for years before
by anti-fraud controls, a combination that makes they begin to steal, so ongoing employee monitor-
them significantly vulnerable to this threat. ing and an understanding of the risk factors and
While resources available for fraud prevention warning signs of fraud are much more likely to
and detection measures are limited in many small identify fraud than pre-employment screening.
companies, several anti-fraud controls — such as
an anti-fraud policy, formal management review • Most occupational fraudsters exhibit certain
procedures and anti-fraud training for staff mem- behavioral traits that can be warning signs of
bers — can be enacted with little direct financial their crimes, such as living beyond their means or
outlay and thus provide a cost-effective investment having unusually close associations with vendors
for protecting these organizations from fraud. or customers. In 92% of the cases we reviewed, at
least one common behavioral red flag was iden-
• External audits are implemented by a large tified before the fraud was detected. Managers,
number of organizations, but they are among the employees, auditors and others should be trained
least effective controls in combating occupational to recognize these warning signs that, when com-
fraud. Such audits were the primary detection bined with other factors, might indicate fraud.
method in just 3% of the fraud cases reported to
us, compared to the 7% of cases that were detected

REPORT TO THE NATIONS ON OCCUPATIONAL FRAUD AND ABUSE 5