Wednesday, July 2, 2008

2008 Report to the Nation is out

The Association of Certified Fraud Examiner's 2008 Report to the Nation on Occupational Fraud & Abuse is out. Not yet available on their website, which is curious.

Every other year, Certified Fraud Examiners submit to the ACFE information on frauds they have investigated. The new report is based on 959 cases that were investigated between January 2006 - February 2008.

Some highlights:
  • Survey participants estimate that U.S. organizations lose 7% of their annual revenues to fraud.
  • The median loss caused by the frauds in the study was $175,000. More than one quarter of the frauds involved losses of at least $1 million.
  • The typical fraud in the study lasted two years from the time it began until the time it was discovered. (I think it was 18 months in the 2006 Report).
  • 27% of cases involved corruptions, and 24% involved fraudulent billing.
  • Financial statement fraud was the most costly category with a median loss of $2 million.
  • Despite increased focus on anti-fraud controls, occupational frauds are much more likely to be detected by a tip than by audits, controls or other means. 46% of the cases were detected by tips from employees, customers, vendors, and other sources.
  • The implementation of anti-fraud controls appears to have a measurable impact on an organization's exposure to fraud. Organizations that conduct surprise audits had a median loss of $70,000, while those that did not had a median loss of $207,000.
  • Small businesses are especially vulnerable to occupational fraud. The median loss suffered by organizations with fewer than 100 employees was $200,000. This was higher than the median loss in any other category, including the largest organizations.
  • Lack of adequate internal controls was most commonly cited as the factor that allowed fraud to occur.
  • Occupational frauds were most often committed by the accounting department or upper management.
  • Occupational fraudsters are generally first-time offenders. Only 7% had prior convictions and only 12% had been previously terminated by an employer for fraud-related conduct.
  • Fraud perpetrators often display behavioral traits that serve as indicators of possible illegal behavior. The most commonly cited behavioral red flags were perpetrators living beyond their apparent means (39% of cases) or experiencing financial difficulties at the time of the frauds (34%).

Bottom line: Fraud continues to be a major drag on the economy (if 7% of revenues are lost to fraud, that is nearly $1 trillion dollars of the United States Gross Domestic Product). Worse yet, many organizations still do not have appropriate fraud defenses in place.

More from the Report in the future.

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