2016 Report- Association of Certified Fraud Examiners

Occupational Fraud

According to the 2016 Report to the Nations presented by the Association of Certified Fraud Examiners recent survey, organizations often suffer major losses from fraud - an average of 5% of revenue a year and $2.7 million per case. Losses are most commonly caused by asset misappropriation in cases of occupational fraud leading to 83% losing a median of $125,000.

Other types of fraud such as financial statement fraud occurred less often but could result in greater losses amounting to a median of $975,000. Organizations could experience asset misappropriation most often in the form of billing schemes and check tampering schemes and the losses could vary based on how long they lasted. While most of the cases lasted about 18 months the damage increased with length of time. Some cases lasting longer than 5 years could amount to as much as $850,000.

Types of Fraud

In almost every case, the fraud was concealed by the perpetrator through methods such as creating and altering physical documents. Fraud is most commonly detected through tips provided through an organization’s hotline over phone, email, or an online form. About two-thirds of fraud cases in the survey were from for-profit organizations and these companies suffered the biggest losses.

Other cases involving a government victim suffered higher losses at the federal level compared to state or provincial and local entities. Different types of organizations experienced certain types of fraud with corruption being more prevalent in larger companies and smaller companies dealing with check tampering, skimming, payroll and cash larceny schemes. The types of companies experiencing fraud were commonly banking and financial services, government and public administration, and manufacturing industries.

Preventing Fraud

Most large organizations implement anti-fraud control through external audits of the financial statements, code of conduct and management certification of the financial statements. Smaller organizations tend to have lower rates of anti-fraud control which can make them more susceptible to fraud and significant damage.

A major weakness in organizations is a lack of internal fraud control. More frauds were committed by people with higher authority such as owners and executives, or in certain departments such as accounting, operations, sales, finance, purchasing, and customer service.

Perpetrators in many cases worked in groups to cause more losses and had certain red flags such as financial difficulties, excessive control issues, family problems, or unusually close association with a vendor or customer. Most perpetrators were first time offenders and their fraud cases were not referred to law enforcement by the organization for fear of bad publicity. Most cases let to a civil suit and were completed through a judgment for the victim or a settlement.