The Certified Fraud Examiners Association issued its 2014 edition of the Report on occupational fraud and is based on 1,483 cases of occupational fraud. The analysis of these cases provides valuable lessons about how fraud is committed, how it is detected and how organizations can reduce their vulnerability to this risk.
Below are some highlights:
- 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.
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.
Organizations with tip lines also experienced frauds that were 41% less costly, and they detected frauds 50% more quickly.
The 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.
Approximately 77% of the frauds in our study were committed by individuals working in one of seven departments: accounting, operations, sales, executive/upper management, customer service, purchasing and finance.
External audits are implemented by a large number of organizations, but they are among the least effective controls in combating occupational fraud. Such audits were the primary detection method in just 3% of the fraud cases reported.
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. Employee support programs: Programs that provide support and assistance to employees dealing with personal issues or challenges, such as drug, family or financial counseling services
Two simple steps, therefore, can help avoid significant exposure to fraud losses. One step, in the area of proactive data monitoring, is to request credit reports on a recurring basis to determine if an employee is living beyond their means. Another step, relatively easy to implement, would be the installation of a “tip line” that would allow employees to anonymously report suspected fraud activity.
The entire report can be accessed here. It provides valuable insights and highlights methods that are most effective at finding fraud and methods that are not effective at finding fraud.