Association of Certified Fraud Examiners 2014 bi-annual report ‘Report to the Nations’ found that survey participants estimated that the typical organization loses 5% of revenues each year to fraud. If applied to the 2013 estimated Gross World Product, this translates to a potential projected global fraud loss of nearly $3.7 trillion. The main findings which apply globally are given below.

Fraud sources

The major sources of fraud: 

• occupational fraud is the biggest single source and is made up of three types:
  • asset misappropriation is the most common, occurring in 85% of the cases in our study, as well as the least costly, causing a median loss of $130,000
  • corruption
  • financial statement fraud covering only 9% of cases involved financial statement fraud, but those cases had the greatest financial impact, with a median loss of $1 million
• banking and financial services, government and public administration, and manufacturing industries continue to have the greatest number of cases reported in our research, while the mining, real estate, and oil and gas industries had the largest reported median losses
• some 77% of the frauds in the study were committed by individuals working in one of seven departments: accounting, operations, sales, executive/upper management, customer service, purchasing and finance
• it takes time and effort to recover the money stolen by perpetrators, and many organizations are never able to fully do so. At the time of our survey, 58% of the victim organizations had not recovered any of their losses due to fraud, and only 14% had made a full recovery
• vast majority of occupational fraudsters are first-time offenders; only 5% had been convicted of a fraud-related offense prior to committing the crimes

Detecting fraud

The survey found that:

• tips are consistently and by far the most common detection method. Over 40% of all cases were detected by a tip — more than twice the rate of any other detection method. Employees accounted for nearly half of all tips that led to the discovery of fraud
• proactive detection measures — such as hotlines, management review procedures, internal audits and employee monitoring mechanisms — are vital in catching frauds early and limiting their losses.
• organizations with hotlines were much more likely to catch fraud by a tip, AFTE data shows this is the most effective way to detect fraud. These organizations also experienced frauds that were 41% less costly, and they detected frauds 50% more quickly
• external audits are are among the least effective controls in combatting occupational fraud and  should not be relied upon as organizations’ primary anti-fraud mechanism
• many of the most effective anti-fraud controls are being overlooked by a significant portion of organizations. For example, proactive data monitoring and analysis was used by only 35% of the victim organizations in our study, but the presence of this control was correlated with frauds that were 60% less costly and 50% shorter in duration. Other less common controls — including surprise audits, a dedicated fraud department or team and formal fraud risk assessments— showed similar associations with reductions in one or both of these measures of fraud damage.

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CTMfile take: Since 1996 ACFE has been highlighting the dangers of occupational fraud in their biannual report, yet it has continued to grow world-wide. Proactive measures are required, including hotlines, management review procedures, internal audits and employee monitoring mechanisms. At least, your company should have a fraud hotline for whistle blowers to ring. Do you?