The Association of Certified Fraud Examiners conducts an annual survey open to approximately 42,000 Certified Fraud Examiners (CFE’s). Participants were asked to provide a detailed narrative of the single largest fraud case they had examined since 2014. Following are some interesting facts and figures that shed some light on the impact of occupational fraud from the study.
- The total loss caused by the cases in the study exceeded $6.3 billion, with an average loss per case of $2.7 million.
- The median loss for all cases in the study was $150,000, with 23.2% of cases causing losses of $1 million or more.
- Asset misappropriation was by far the most common form of occupational fraud, occurring in more than 83% of cases.
- Among the various forms of asset misappropriation, billing schemes and check tampering schemes posed the greatest risk based on their relative frequency and median loss.
- In 94.5% of the cases in the study, the perpetrator took some efforts to conceal the fraud. The most common concealment methods were creating and altering physical documents.
- Approximately two-thirds of the cases reported were targeted privately held or publicly owned companies.
- Check tampering, skimming, payroll and cash larceny schemes were twice as common in small organizations as in larger organizations.
- Small organizations had a significantly lower implementation rate of anti-fraud controls than large organizations. This gap in fraud prevention and detection coverage leaves small organizations extremely susceptible to frauds that can cause significant damage to their limited resources.
- The perpetrator’s level of authority was strongly correlated with the size of the fraud.
- More occupational frauds originated in the accounting department than in any other business unit. Of the frauds analyzed, more than three-fourths were committed by individuals working in seven key departments: accounting, operations, sales, executive/upper management, customer service, purchasing and finance.
- Fraud perpetrators tended to display behavioral warning signs when they were engaged in their crimes. The most common red flags were living beyond means, financial difficulties, unusually close association with a vendor or customer, excessive control issues, a general “wheeler-dealer” attitude involving unscrupulous behavior and recent divorce or family problems. At least one of these red flags was exhibited during the fraud in 78.9% of cases.
- Most occupational fraudsters are first-time offenders. Only 5.2% of perpetrators in the study had previously been convicted of a fraud-related offense and only 8.3% had previously been fired by an employer for fraud-related conduct.
The “fraud triangle” is a model for explaining what causes a person to commit these frauds. It consists of three components which, together, can lead to fraudulent behavior:
Sadly, the majority of frauds are committed by the most trusted employee. This employee is placed in a position with a high level of authority, with little oversight; thus providing opportunity to commit fraud. Financial pressures from everyday life can become unbearable and can allow an otherwise honest person to rationalize committing fraud.
Now that light has been shed on the cost and prevalence of fraud, it makes good business sense not to turn a blind eye to the issue, but rather become proactive in protecting your company. JVTR has a team of Certified Fraud Examiners that can analyze your current processes and procedures and make recommendations to strengthen your financial controls. A strong system of internal controls serves as your best defense to prevent fraud. If the numbers are just not making sense or there is knowledge or suspicion of fraud, we can conduct an examination to assess and document the existence of fraud.
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