2012 Report to the Nations on Occupational Fraud and Abuse from the Association of Certified Fraud Examiners (ACFE) estimates that the typical organization loses five percent of its revenues to occupational fraud each year and that this figure translates to a potential projected global fraud loss of more than $3.5 trillion applied to the estimated 2011 Gross World Product. The study also found that the median loss caused by the occupational fraud cases was $140,000, and more than one-fifth of these cases caused losses of at least $1 million. The ACFE 2012 Report to the Nations is available at: http://www.acfe.com/RTTN/. “We are proud to say that the information contained in the original Report and its successors has become the most authoritative and widely quoted body of research on occupational fraud,” ACFE President & CEO James D. Ratley, Certified Fraud Examiner (CFE), wrote in an excerpt from a ‘Letter from the President & CEO’ in the report. “As in previous years, what is perhaps most striking about the data we gathered is how consistent the patterns of fraud are around the globe and over time. We believe this consistency reaffirms the value of our research efforts and the reliability of our findings as truly representative of the characteristics of occupational fraudsters and their schemes.” Since the inception of the report in 1996, ACFE has released six updated editions – in 2002, 2004, 2006, 2008, 2010, and 2012 – based on detailed case information provided by Certified Fraud Examiners (CFEs). The ACFE 2012 Report to the Nations on Occupational Fraud and Abuse is based on data compiled from a study of 1,388 cases of occupational fraud that occurred worldwide between January 2010 and December 2011. The fraud cases in the study came from 94 nations — providing a truly global view into the plague of occupational fraud. Some Key Findings and Highlights of the ACFE 2012 Report to the Nations include:

  • Fraud Detection: The frauds reported lasted a median of 18 months before being detected. Occupational fraud is more likely to be detected by a tip than by any other method, with the majority of tips reporting fraud come from employees of the victim organization.
  • Victims of Fraud: Small businesses suffered the largest median losses due to occupational fraud since they typically employ fewer anti-fraud controls than their larger counterparts, which increased their vulnerability to fraud. The industries most commonly victimized in our current study were the banking and financial services, government and public administration, and manufacturing sectors. Nearly half of victim organizations – 49 percent – do not recover any losses that they suffer due to fraud.
  • Perpetrators of Fraud by Age/Sex: Approximately 54% of all fraudsters were between the ages of 31 and 45. Fraud losses, however, tended to rise with the age of the perpetrator. For example, the 50–55 year range had a median loss of $600,000, nearly two-and-a-half times higher than the median loss in any other age range. Males tended to account for roughly two-thirds of all fraud cases, and male fraudsters tended to cause losses that were more than twice as high as the losses caused by females. In the 2012 study, the median loss in a scheme committed by a male was $200,000 while the median loss for a female was $91,000.
  • Perpetrators of Fraud by Length of Employment: Approximately 42 percent of occupational fraudsters had between one and five years of tenure at their organizations. Meanwhile fewer than 6 percent of perpetrators committed fraud within the first year on the job. Tenure at a job has a strong correlation with fraud losses. Individuals who worked at an organization for a longer period of time often enjoy more trust from their supervisors and co-workers, which can mean less scrutiny over their actions. Their experience can also give them a better understanding of the organization’s internal controls, which enables them to more successfully carry out and conceal their fraud schemes.
  • Perpetrators of Fraud by Position/Department: Perpetrators of fraud with higher levels of authority tended to cause much larger losses. The median loss among frauds committed by owner/executives was $573,000, the median loss caused by managers was $180,000 and the median loss caused by employees was $60,000. More than three out of four fraud cases in the study – 77 percent – were committed by individuals working in one of six departments: accounting, operations, sales, executive/upper management, customer service and purchasing.
  • Perpetrators of Fraud by Past Criminal Record: Most occupational fraudsters are first-time offenders with clean employment histories, with 87 percent of occupational fraudsters having never been charged or convicted of a fraud-related offense and 84 percent having never been punished or terminated by an employer for fraud-related conduct.
  • “Red Flags” Indicating Fraud: In the majority of cases – 81 percent of cases – the fraudster displayed one or more behavioral red flags that are often associated with fraudulent conduct: living beyond means (36 percent of cases), financial difficulties (27 percent of cases), unusually close association with vendors or customers (19 percent of cases) and excessive control issues (18 percent of cases).
The ACFE 2012 Report to the Nations also includes Conclusions & Recommendations:
  • The nature and threat of occupational fraud is truly universal, as many trends and characteristics were similar regardless of where the fraud occurred around the globe.
  • Fraud reporting mechanisms, such as hotlines, should be set up to receive tips from both internal and external sources and should allow anonymity and confidentiality since providing individuals a means to report suspicious activity is a critical part of an anti-fraud program.  Management should actively encourage employees to report suspicious activity.
  • External audits should not be relied upon as an organization’s primary fraud detection method, since the study found they detected only 3 percent of the frauds reported and their usefulness as a means of uncovering fraud is limited.
  • Targeted fraud awareness training for employees and managers is a critical component of a well-rounded program for preventing and detecting fraud since employee tips are the most common way occupational fraud is detected and our research shows organizations that have anti-fraud training programs experience lower losses and shorter frauds.
  • Small businesses are particularly vulnerable to fraud since these organizations typically have fewer resources than their larger counterparts, which translated to fewer and less-effective anti-fraud controls. In addition, because they have fewer resources, the losses experienced by small businesses tend to have a greater impact than they would in larger organizations.
  • Managers, employees, and auditors should be educated on the common “red flag” behavioral patterns and traits exhibited by most fraudsters and encouraged to consider them to help identify patterns that might indicate fraudulent activity.
  • Proactive measures to prevent fraud are critical since the cost of occupational fraud — both financially and to an organization’s reputation — can be damaging with nearly half of victim organizations were unable to recover their losses. Management should continually assess the organization’s specific fraud risks and evaluate its fraud prevention programs.
The ACFE 2012 Report to the Nations is available at: http://www.acfe.com/RTTN/. ACFE members should look for their free printed copy of the 2012 Report to the Nations in their July/August edition of Fraud Magazine (excludes electronic membership). For information about uncovering potential fraud with the use of background checks, visit Employment Screening Resources (ESR) – ‘The Background Check Authority’ and nationwide background screening firm accredited by The National Association of Professional Background Screeners (NAPBS®) – at http://www.esrcheck.com/ or call ESR at 415.898.0044. Sources: http://www.acfe.com/RTTN/ http://www.acfe.com/rttn-highlights.aspx http://www.acfe.com/rttn-conclusions.aspx About Employment Screening Resources (ESR): Employment Screening Resources (ESR) – ‘The Background Check AuthoritySM’– provides accurate and actionable information, empowering employers to make informed safe hiring decisions for the benefit for our clients, their employees, and the public. ESR literally wrote the book on background screening with “The Safe Hiring Manual” by Founder and CEO Lester Rosen. ESR is accredited by The National Association of Professional Background Screeners (NAPBS), a distinction held by a small percentage of screening firms. By choosing an accredited screening firm like ESR, employers know they have selected an agency that meets the highest industry standards. For more information about Employment Screening Resources (ESR), visit http://www.esrcheck.com/ or call 415.898.0044 or 888.999.4474. About ESR News: The Employment Screening Resources (ESR) News blog – ESR News – provides employment screening information for employers, recruiters, and jobseekers on a variety of topics including credit reports, criminal records, data privacy, discrimination, E-Verify, jobs reports, legal updates, negligent hiring, workplace violence, and use of search engines and social network sites for background checks. For more information about ESR News or to send comments or questions, please email ESR News Editor Thomas Ahearn at [email protected].]]>