Occupational fraud is a universal threat
From health care fraud to identity theft, mortgage fraud to Ponzi schemes, the term fraud covers a wide range of definitions and categories. Nonetheless, no matter what type occurs, fraud cases almost always involve a violation of trust and leave victims to face dire consequences. Among the most damaging forms, occupational fraud – or “the use of one’s occupation for personal enrichment through the deliberate misuse or misappropriation of the employing organization’s resources or assets” – is a serious threat facing companies around the world.
The 2012 Report to the Nations on Occupational Fraud and Abuse provides an in-depth analysis of over 1,300 occupational fraud cases worldwide. The data, issued on behalf of The Association of Certified Fraud Examiners (ACFE) reveals important findings, trends and costly effects of occupational fraud in both large and small organizations. The study also reveals several consistent patterns and trends to these cases, regardless of where they occur around the world. Fraud perpetrators go to great lengths to conceal their efforts, making it difficult to quantify the full extent of occupational fraud losses. There is no question that this issue poses a universal threat and requires thorough investigation into the detection and prevention of future cases.
Among the key findings in this year’s report:
- The typical organization loses an estimated 5% of its revenue to fraud each year. Weighted against the 2011 Gross World Domestic Product, this figure translates to a potential projected annual fraud loss of more than $3.5 trillion.
- The median loss caused by the occupational fraud cases in this study was $140,000.
- More than one-fifth of these cases caused losses of at least $1 million.
- Reported fraud cases lasted an average of 18 months before being detected.
- Asset misappropriation schemes comprise 87% of the reported cases, making it by far the most common type of occupational fraud. Although they were the least costly form of fraud, the average loss was still $120,000.
- Financial statement fraud is only 8% of cases yet the median loss is $1mm.
- Corruption and billing schemes pose the greatest risks to organizations throughout the world.These two scheme types comprise over 50% of the frauds reported.
- Occupational fraud is a significant threat to small businesses, with the smallest organizations in the study suffering the largest median losses. Since these organizations typically employ fewer anti-fraud controls than their larger counterparts, they are more vulnerable to fraud.
- he Industries most commonly victimized in the study were banking, financial services, government and public administration, and manufacturing sectors. These findings are consistent with previous years’ research and study findings.
- Individuals with higher levels of authority and/or longevity cause larger losses
- Most occupational fraudsters are first-time offenders with clean employment histories.
- Employees are usually the first to catch fraud schemes – in 2012, 43.3% of fraud cases were uncovered by tips.
For a full list of summary findings, click here.
The probability is high that fraud is happening within your organization. Audits – internal and external – rarely reveal fraud. What does work is a strong cultural ethic, education about the impact of fraud and guaranteed anonymity to tipsters. Cultivate a culture that is transparent and reflects honesty and respect and in the end the results will be an increase in company morale, and a decrease in overall risk.
About the Author
Bruce MacDougall is a Senior Vice President in the Property & Casualty group at WGA and leader of the Private Client Group. His responsibilities at WGA include developing relationships and serving as a resource for WGA clients in all areas of property and casualty insurance brokerage and risk management consulting.