Study Highlights Need for Fraud Awareness, Prevention

Study Highlights Need for Fraud Awareness, Prevention

An association’s weeklong campaign to raise awareness of workplace fraud leverages a recent study that raises alarm bells about the incidence of fraud worldwide.

Organizations lose an estimated 5 percent of their annual revenues to workplace fraud, according to a study conducted by the Association of Certified Fraud Examiners (ACFE). If applied to the estimated 2011 Gross World Product, that amounts to about $3.5 trillion in total fraud losses worldwide.

What is perhaps most striking about the data we gathered is how consistent the patterns of fraud are around the globe and over time.

The data in ACFE’s 2012 Report to the Nations on Occupational Fraud & Abuse lends a sense of urgency to International Fraud Awareness Week November 11-17.

“What is perhaps most striking about the data we gathered is how consistent the patterns of fraud are around the globe and over time,” James D. Ratley, president and CEO of ACFE, said in a statement. “We believe this consistency reaffirms the value of our research efforts and the reliability of our findings as truly representative of the characteristics of occupational fraudsters and their schemes.”

The report, a study of 1,388 cases of occupational fraud from 94 countries in 2010 and 2011, found that small businesses face an increased risk of fraud because “they typically employ fewer antifraud controls than their larger counterparts, which increases their vulnerability to fraud.”

Some other key findings from the report:

  • The median loss caused by occupational fraud cases was $140,000. More than one-fifth of the cases involved losses of at least $1 million.
  • The median duration of the fraudulent schemes in the study was 18 months.
  • Occupational fraud is more likely to be detected by a tip than any other method. The majority of tips came from employees of the same organization.
  • Most of the trends in fraud schemes, perpetrator characteristics, and antifraud controls are similar, regardless of where the fraud occurred.
  • The median loss among frauds committed by owners/executives was $573,000; the median loss caused by managers was $180,000; the median loss caused by employees was $60,000.
  • Nearly half of organizations victimized by fraud do not recover any of their losses.

External audits, the most common fraud-prevention method used by organizations in the study, detected only 3 percent of frauds reported to ACFE. While these audits are important, the group suggests other tactics be used to increase the chances of thwarting a fraudulent scheme.

“Providing individuals a means to report suspicious activity is a critical part of an antifraud program,” the report notes. Also, “research shows organizations that have antifraud training programs for employees, managers, and executives experience lower losses and shorter frauds than organizations without such programs in place. Most fraudsters exhibit behavioral traits that can serve as warning signs of their actions. Managers, employees, and auditors should be educated on these common behavioral patterns and encouraged to consider them…to help identify patterns that might indicate fraudulent activity.”

Rob Stott

By Rob Stott

Rob Stott is a contributing editor for Associations Now. MORE

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