2018 ACFE Report to The Nations on Occupational Fraud
Occupational Fraud continues to remain a universal problem faced by all business and government entities against dishonest individuals who have been hired to carry out the organisation’s operations.
Steven Ponsonby, Founding Director of Forensic Accounting Qld advises that fraud is ubiquitous; it does not discriminate in its occurrence and while anti-fraud controls can effectively reduce the likelihood and potential impact of fraud, the truth is that no entity is immune to this threat. Unfortunately, many organisations still suffer from an “it can’t happen here” mindset. To help combat this misconception, to raise public awareness about the cost and universal nature of fraud and to support anti-fraud professionals around the globe, the Association of Certified Fraud Examiners (“ACFE”) undertakes extensive research into the costs and trends related to Occupational Fraud in the form of a survey which is released every two years.
The first “Report to the Nation on Occupational Fraud and Abuse” was published in 1996 to explore the impact of Occupational Fraud and twenty years since the inaugural report was released, the continuing research on these topics now represents the largest collection of occupational fraud cases ever analysed.
Occupational Fraud is defined as:
“the use of one’s occupation for personal enrichment through the deliberate misuse or misapplication of the employing organization’s resources or assets.”
The 2018 report contains an analysis of 2,690 cases of occupational fraud that were investigated between January 2016 and October 2017 across the globe, including 38 cases in Australia, (26 cases reported in 2016) as set out in a table extracted from the report below.
Please note: Forensic Accounting Qld has contributed to the ACFE’S Report to the Nations for a number of years now. This year, the Australian cases referred to in the table included 2 cases (i.e. 5.2%) that were investigated by Forensic Accounting Qld.
The frauds occurred in 125 countries, (including Australia) across 23 separate industry categories and offer readers an interesting insight into the global nature of occupational fraud.1
Whilst, the full report can be accessed here, we have set out a summary of the 2018 report’s major findings below for your information:
- Organisations lose an estimated 5% of total revenue to fraud each year.
- The median loss caused by occupational fraud is $130,000, (down on the 2016 survey).
- More than 22% of the reported losses exceeded $1 million, (same as the 2016 survey).
- The frauds had been undertaken for an average of 16 months before being detected, (down on the 2016 survey).
- Internal control weaknesses were responsible for approx 50% of all frauds investigated.
- Losses associated with an employees tenure > than 5 years averaged $200,000.
- Losses caused by men were 74% greater than those perpetrated by women.
- In 97% of the cases in our study, the perpetrator took some efforts to conceal the fraud. The most common concealment methods were creating and altering physical documents.
- Asset misappropriation schemes were by far the most common type of occupational fraud, comprising 89% of the cases reported with a medium loss of $114,000).
- Financial statement fraud schemes represented 10% of the cases in the study, but caused the greatest median loss at $800,000.
- Occupational fraud is more likely to be detected by a tip off than by any other method, i.e. 40% versus 15% for internal audit.
- Occupational fraud is a significant threat to small businesses (i.e. those with < 100 employees)– suffering a similar percentage to an organisations with greater than 10,000 employees, however the economic impact on a small business will be dis proportionally larger.
- Fraud perpetrators tended to display behavioural warning signs when they were engaged in their crimes, with 85% displaying at least one behavioural red flag.
- Only 4% of fraudsters had a prior conviction.
- A majority of the victims recovered nothing2 .
The ACFE is the world’s largest anti-fraud organisation and premier provider of anti-fraud training and education. Together with over 80,000 members, the ACFE is reducing business fraud world-wide and inspiring public confidence in the integrity and objectivity within the profession.
The mission of the Association of Certified Fraud Examiners is to reduce the incidence of fraud and white-collar crime and to assist the Membership in fraud detection and deterrence internationally. Please refer to www.acfe.com for further information on the ACFE.
1 Note: the number of cases in each region largely reflects the demographics of ACFE membership, as that is the source of our data which should not be interpreted to mean that occupational fraud is necessarily more or less likely to occur in any particular region.
2 We note that the majority of the fraud investigations undertaken by Forensic Accounting to date, that we have, working with the right legal team, achieved 100% restitution for the misappropriation quantified.