In 2024, the Association of Certified Fraud Examiners released the 13th edition of its comprehensive Global Study on Occupational Fraud and Abuse, titled A Report to the Nations. This study delved into the costs and impacts of occupational fraud, analyzing 1,921 reported fraud cases across 138 countries and territories. These cases resulted in total losses exceeding $3.1 billion and were investigated between January 2022 and September 2023. However, this represents only a fraction of the actual number of fraud incidents occurring annually worldwide. The study highlights that organizations typically lose 5% of their revenues to fraud each year. Notably, the median loss attributed to occupational fraud cases (fraud committed by employees) was $145,000, while the average loss per case studied reached $1,700,000. Approximately 22% of cases led to losses exceeding $1 million. It’s crucial for all companies to be vigilant about the risk of fraud, understand different types of fraud and implement strategies to reduce its occurrence.
Common types of reported fraud
Since its inception in 1996, the Report to the Nations has analyzed over 20,000 cases of occupational fraud. Across the 13 studies conducted, the ACFE explored into the tactics employed by perpetrators to defraud their employers. Remarkably, the schemes used by occupational fraudsters have remained consistent over time. Among the various types of fraud organizations may encounter, occupational fraud stands out as the most significant and prevalent threat. At the highest level, three primary categories of occupational fraud exist: Asset misappropriation, corruption and financial statement fraud
Asset misappropriation, accounting for 89% of all reported fraud cases, is often challenging to detect. However, it also tends to result in the lowest median loss, averaging $120,000. This category encompasses nine major types of theft, including skimming, cash larceny, billing schemes, payroll fraud, expense reimbursement fraud, check or payment tampering, cash register disbursements, and theft/misuse of cash-on-hand and noncash assets. These fraudulent activities often persist for extended periods before discovery.
In the 2024 study, billing schemes (22% of all cases) and noncash misappropriation (also 22% of cases) were the most common forms of asset misappropriation. Billing schemes, with a median loss of $100,000, typically lasted 18 months, posing a significant risk. Noncash misappropriation (such as stealing inventory from a warehouse or misusing confidential customer information) had a median loss of $66,000 and a shorter median duration of 12 months. While complete prevention of fraud may be challenging, early detection remains crucial for safeguarding organizations against potential damage.
Corruption ranks as the next most common type of fraud, accounting for 48% of the cases analyzed in the Global Study (note that the total may exceed 100% due to the occurrence of multiple fraud schemes together). Corruption schemes encompass various offenses, including bribery, conflicts of interest and extortion. These illicit activities result in a median loss of $200,000 and typically persist for approximately 13 months. In corruption cases, perpetrators more commonly held an unusually close relationships with vendors or customers.
Financial statement fraud stands as the least common yet most financially devastating category of fraudulent activity. This type of fraud involves manipulating financial statements by creating fictitious revenues, misstating liabilities and expenses, and improperly valuing assets. Due to the high level of access required for such manipulation, instances of financial statement fraud are relatively rare. In fact, they account for only 5% of the cases analyzed in the Global Study. However, considering the sophistication and access of the perpetrators involved, the median loss attributed to this type of fraud is a staggering $766,000.
Concealment and detection methods
Fraudulent acts not only involve the execution of the scheme itself but also include efforts to conceal the crime. Understanding the methods used for concealment can assist organizations in designing effective prevention mechanisms and recognizing warning signs of fraud. The top four concealment methods people use are creating fabricated physical documents, altering existing physical documents, creating fake electronic records, and altering authentic electronic files.
In general, manager-level fraudsters tend to alter evidence, while owners/executives are more likely to create or delete evidence.
Despite the availability of increasingly sophisticated fraud detection techniques, tips remain the most common method for uncovering fraudulent activities. According to the study, more than 43% of cases were detected through tips. Among all fraud cases, approximately half of the tips originated from employees. Additionally, a significant number of tips came from external parties, including customers, vendors and competitors. Organizations actively encourage the reporting of tips and complaints, often promoting fraud hotlines primarily to employees. However, this data suggests that organizations should also consider extending these reporting mechanisms to external parties.
The presence of a hotline or other reporting system significantly affects fraud detection outcomes. Median losses were nearly doubled in organizations without hotlines, while organizations with hotlines detected fraud more quickly and frequently. Notably, fraud awareness training enhances the likelihood of tip-based detection, and tips are more likely to be submitted through reporting channels that offer such training.
What strategies can organizations employ to protect themselves and reduce the likelihood of fraud? The results of the 2024 study show that some fraud detection methods are more effective than others in the sense that they correlate with lower fraud losses. Passive detection methods, meaning the fraud came to the victim’s attention through no effort of their own, include notification by police, by accident or confession. Cases where the victim was notified by the police resulted in median losses of $675,000 with a median duration of 24 months. Active detection methods, meaning they involved a process or effort designed (at least in part) to proactively detect fraud, include document examination, management review, internal audit, account reconciliation, IT controls, and surveillance/monitoring. Frauds discovered through surveillance/monitoring had the lowest median loss of $65,000 and only had a median duration of 6 months. Detection methods such as external audit and tips can potentially be active or passive. What can be concluded that schemes discovered through active methods were shorter in duration and had lower median losses than those detected passively. Anti-fraud controls can lead to more effective detection of occupational fraud.
Lena Combs is a partner and practice leader at Withum, a technology-driven advisory and accounting firm. The company specializes in cybersecurity, digital advisory and hospitality services. Brenna Agamaite is a senior manager at Withum.
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