ACFE Releases 2016 Report on Occupational Fraud & Abuse

On March 30, 2016, the Association of Certified Fraud Examiners (ACFE) released the 2016 Report to the Nations on Occupational Fraud and Abuse (RTTN).

This latest report, which includes data compiled from 2,410 cases of fraud investigated between January 2014 and October 2015, shows that organizations around the world lost an estimated 5 percent of their annual revenues to occupational fraud. As a percentage of 2014 estimated gross world product, this translates to a potential loss of more than $3.7 trillion.

Other key findings from the survey include:

  • The median loss for all cases involved in the study was $150,000. Fraud cases with losses of $1 million or more made up 23.2 percent of the total cases reported.
  • Asset misappropriation was the most common form of occupational fraud. It occurred in more than 83 percent of the cases, with a median loss of $125,000.
  • Billing schemes (median loss of $100,000) and check tampering schemes (median loss of $158,000), both categories of asset misappropriation, posed the greatest fraud risk based on their relative frequency and median loss.
  • Corruption was more prevalent in organizations with more than 100 employees. Check tampering, skimming, payroll and cash larceny schemes were twice as common in small organizations.
  • The median duration of fraud was 18 months, and losses increased with time. Schemes that lasted more than five years resulted in a median loss of $850,000.
  • The most common fraud detection method was tips (39.1 percent of reported cases). Organizations with a reporting hotline were more likely to detect fraud through tips than organizations without hotlines (47.3 percent compared to 28.2 percent, respectively).
  • In the area of anti-fraud controls, small organizations had a significantly lower implementation rate than larger organizations, leaving them susceptible to fraud that could significantly damage their limited resources.
  • More than 75 percent of the occupational fraud reported was committed by individuals working in seven key departments:
    • Accounting
    • Operations
    • Sales
    • Executive/upper management
    • Customer service
    • Purchasing
    • Finance

More fraud originated in the accounting department than in any other business unit (16.6 percent).

  • Common behavioral warning signs exhibited by fraudsters were:
    • Living beyond their means
    • Financial difficulties
    • Unusually close association with vendors or customers
    • Excessive control issues
    • General “wheeler-dealer” attitude involving unscrupulous behavior
    • Recent divorce or family problems
  • Only 5.3 percent of occupational fraud perpetrators had previously been convicted of a fraud-related offense. Only 8.3 percent had previously been fired by an employer for fraud-related conduct.

Based on these findings, here are a few proactive steps business owners, directors and managers can take to decrease the risk of becoming occupational fraud victims.

  1. Implement data analytics.

The RTTN found that 36.7 percent of victim companies using proactive data monitoring and data analytics techniques suffered losses that were 54 percent lower than those who didn’t. Those companies also detected fraud in half the time.

Implementing data analytics may sound complicated, but you’d be amazed at what you can accomplish simply by using Microsoft Excel. For instance, you can potentially identify a fictitious vendor scheme by putting your vendor master file and employee master file in an Excel worksheet, sorting the entries by addresses, phone numbers or Tax ID numbers and looking for duplicates.

  1. Implement a hotline.

    Choosing a third-party hotline service gives employees peace of mind that they can anonymously report suspected fraud. Good hotline services also help train employees on what occupational fraud looks like and work with employers to implement an internal investigation protocol.
  1. Pay attention to behavioral red flags.

    Sometimes, the red flag behaviors listed above are merely personality traits. However, if you consistently observe a concerning personality trait, pay attention.

Consider the individual’s job responsibilities and what his or her behavior might mean in terms of occupational fraud. Many times, when wrapping up an investigation, a colleague of the perpetrator says something like, “I wondered how they could afford all those expensive vacations.”

More than 91 percent of the fraud perpetrators in the study exhibited at least one behavioral red flag prior to detection. Two or more were noted in 57 percent of the cases.

Read complete RTTN here.

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Shauna has more than 20 years of experience providing dispute analysis, forensic investigations and valuation services to the business and legal communities. Her dispute analysis experience includes litigation consulting, trial, deposition and arbitration testimony and prelitigation financial analysis.

Shauna Woody-Coussens – who has written posts on BKD Forensics.


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