Every two years, the Association of Certified Fraud Examiners (ACFE) publishes the results of its comprehensive occupational fraud survey. The latest edition, however, contains a new twist: In its 2010 Report to the Nations on Occupational Fraud and Abuse, ACFE added an “s” to “Nation” to reflect the survey’s new global scope. Previous surveys were limited to U.S. organizations.
One thing remains the same, however: Occupational fraud collectively costs U.S. companies billions of dollars every year. But companies that use information contained in the ACFE report can limit their losses.
Global problem, local losses
The 2010 report was based on a study of more than 1,800 fraud cases in 106 countries between January 2008 and December 2009. The results reveal that fraud is truly a global problem. Although certain data varies from region to region, overall trends — including methods, perpetrator demographics and the impact of anti-fraud measures — are remarkably similar.
The typical organization loses 5% of its revenue to fraud, with a median loss of $160,000. In the study, asset misappropriation schemes were the most common, representing about 86% of the cases. But with a median loss of $135,000, they were also the least costly. Financial statement fraud was relatively rare (less than 5% of cases) but was disproportionately harmful — with a median loss of more than $4 million. Corruption schemes fell in between, occurring in nearly one-third of the cases and resulting in a $250,000 median loss.
Valuable guide
The 2010 ACFE report, available online at http://www.acfe.com/rttn/2010-rttn.asp, can be a valuable guide to preventing and detecting fraud. For business owners and managers who are new to the report, a two-page checklist on page 80 can help them quickly and easily assess the efficacy of their organizations’ fraud prevention measures.
The report also offers statistics about schemes, perpetrators, and prevention and detection techniques, broken down by region, industry, and organization size and type. Sections on fraud perpetrators and behavioral red flags can help companies better spot fraud that is already underway.
Lessons learned
The ACFE report draws plenty of conclusions, but perhaps the most important practical one for companies is that combating fraud demands a multi-pronged approach. Different techniques may be more effective in uncovering different types of fraud.
Here it’s important to make a distinction between detection and prevention tools. For example, tips (from employees, customers, vendors and others) are the most common method of detecting fraud (40% of cases), particularly when an organization has an anonymous fraud hotline combined with employee awareness.
Common internal controls — such as audits, management reviews and IT security measures — were less effective as detection tools. Many organizations rely almost exclusively on audits, yet internal audits found fraud in only 13.9% of cases. Only 4.6% of schemes are discovered by external audits. However, audits can have a strong deterrent effect and remain critical weapons in any company’s antifraud arsenal. The key to fighting fraud, then, is to implement both traditional internal controls, such as audits, as well as proven detection methods, such as hotlines.
Companies might also consider tweaking their current practices. One technique that’s highly effective, yet underused, is the surprise audit. Less than 30% of organizations in the study used them, yet in those that did the median loss was reduced by almost 52% and the median duration of the schemes was nearly 37% shorter.
Bottom line
For American — and global — companies concerned about how fraud is cutting into their bottom lines, the ACFE report is invaluable. If your clients are trying to detect or prevent fraud, give them a copy.
Case in Point - Issue 4