Risk Management Blog

17 Facts to Fuel Your 2017 Fraud Prevention Plan

Every two years, the Association of Certified Fraud Examiners (ACFE) performs and publishes research on worldwide organizational fraud. These reports have rearranged the landscape on organizational fraud by providing a bedrock data-based description of the incidence, characteristics and impact of fraud on organizations of all types.

The 9^th report in this series, the 2016 Report to the Nations on Occupational Fraud and Abuse, continues and expands the information available to organizational managers to help shape their risk management strategies to combat organizational fraud. With the sound methodology repeated by these studies over time, some solid trends have been established, but we can also see some emerging threats.

Here are 17 facts that can help you to understand and respond to the threat of organizational fraud in your organization:

1. Organizations worldwide lose about 5% of top-line revenue to organizational fraud. The consistency of this finding across ACFE annual studies substantiates its validity.
2. In 2016, the total loss to fraud was estimated as $6.3 billion, an average loss of $2.7 million. 2% of cases suffered $1 million or more in losses, with a median loss across all organizations, large and small, of $150,000 (50% of all cases had losses this large or larger).
3. The largest median losses were in companies exposed to the market, whether privately held or publicly traded, at about $180,000 per case.
4. Median loss due to manager/executive fraud was $703,000, compared to a median loss of $65,000 due to frauds caused by employees.
5. Active detection methods such as controls or surveillance were much more effective in finding frauds than passive methods like relying on police or routine reports.
6. Financial statement fraud, which generally requires sophisticated inside information, was the least common form of fraud at 10% of cases, but it resulted in a median loss of $975,000.
7. The median loss of small companies (less than 100 employers) was as large as that of large companies (10,000 employees), but, predictably, the impact was a much larger. By contrast, the more common threat of asset misappropriation at 83% of cases caused a median loss of $125,000.
8. Losses increase the longer the fraud continued. Frauds that lasted five or more years caused median losses of $850,000.
9. Almost all perpetrators, 94.5%, attempted to conceal their crime, usually by altering documents that may be evidence.
10. 1% of discovered frauds were found due to a tip; but organizations with hotlines received many more tips than those without (47.3% v. 28.2%).
11. Whistleblowers are more likely to report to supervisors or executives, and they use online methods more than direct contact.
12. The type of fraud varied by organization: small ones were more likely to experience opportunistic crimes like skimming, while large ones were hurt by corruption.
13. 82% of organizations had implemented external audits.
14. Small organizations were less likely to have anti-fraud controls in place despite the fact that frauds can have disproportionately large impacts on them.
15. Organizations with anti-fraud controls in place had fewer frauds and were able to detect frauds more quickly.
16. Anti-fraud controls both reduced losses and improved the time to detection of on-going frauds.
17. Occupational frauds tend to be committed by first-time offenders. About 14% of fraudsters had a record of fraud or were fired for fraud-related activity.

Read the report for the context and detail on these findings. Organizational fraud is a threat to your organization, no matter how large it is or how it is incorporated. This report will help you understand how to respond.