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.
- 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.