acfe 2016 report to the nations on occupational fraud and ... · acfe 2016 report to the nations on...
TRANSCRIPT
9/16/2016
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The Accounts Payable & Procure-To-Pay Conference & Expo is produced by:9/16/2016
ACFE 2016 Report to the
Nations on Occupational
Fraud and Abuse
October 26, 2016
Allan Bachman, CFE
Education Manager
Association of Certified Fraud Examiners
Fraud is Hidden
• By its very nature its difficult to measure fraud.
• Unlike other crimes, until it is discovered, there is no way to know.
• There is a “tip of the iceberg” potential to all of these statistics.
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Executive Summary
• Typical organization loses 5% of revenues as a result of fraud.
• Total losses by cases examined exceeded $6.3 billion.
– The average loss per case was $2.7 million
– Direct loss does not include indirect losses
• It cannot be determined what the actual global losses due to fraud actually are.
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How Occupational Fraud Is Committed
• Most frauds originated in the accounting department (16.6%).
• 75% of frauds were committed in one of these departments:
– Accounting, Operations, Sales, Customer Service, Purchasing, Finance, Executive/Upper Management
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Some Definitions
• Occupational fraud:
– personal enrichment through deliberate misuse or the organization’s resources or assets
• Asset misappropriation:
– Employee steels an organization’s resources
• Billing scheme:
– Fraudulent disbursement for fictitious good or services (i.e. shell company)
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Some Definitions
• Check tampering:
– Forging or altering a check or electronic payment
• Employee reimbursement:
– Employee makes a claim for fictitious or inflated business expense reimbursement
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How Occupational Fraud Is Committed
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How Occupational Fraud Is Committed
83.5%
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How Occupational Fraud Is Committed
$125,000
$975,000
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Asset Misappropriation Sub-Schemes
Duration of Fraud Schemes
• The longer a fraud went undiscovered, the greater the loss.
– Median duration 18 months.
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Duration of Fraud Schemes
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Duration of Fraud Schemes
24 Months
24 Months
24 Months
Concealment of Fraud Schemes
• In 94.5% of the cases investigated the perpetrator took some effort to conceal the fraud.
• Methods used include:
– Created fraudulent (physical and/or electronic) documents
– Altered (physical and/or electronic) documents
– Altered or created transactions in the accounting system
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Concealment of Fraud Schemes
52.9%
Initial Detection of Occupational Frauds
• Most common detection method was tips (39.1%)– Organizations with hotlines were more likely to
have fraud detected.
• Organizations with hotlines were more likely to get tips (47.3%) compared to those without (28.2%).
• Active detection reduced the median loss and duration more than passive detection.
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Initial Detection of Occupational Frauds
39.1%
16.5%
13.4%
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Source of Tips
51.5%
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Impact of Hotlines
47.3%
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Formal Reporting Mechanism Used by Whistleblower
39.5%
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Size of Organization
• Median loss ($150,000) by small organizations (less than 100 employees) was the same as largest organizations (more than 10,000).
– This type of loss has a greater impact on the smaller organization.
• Smaller organizations had less anti-fraud controls.
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Size of Organization
$150,000
$150,000
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Methods of Fraud in Small Businesses
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Anti-Fraud Controls at Victim Organizations
• External audits was the most commonly implemented anti-fraud control (82%).
• Small organizations had fewer anti-fraud controls implemented.
• The presence of anti-fraud controls correlates to both lower fraud losses and quicker detection.
• Lack of internal controls was the most prominent weakness (29.3%).
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Anti-Fraud Controls at Victim Organizations
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Anti-Fraud Controls at Small Businesses
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Trends in the Implementation of Anti-Fraud Controls
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Effectiveness of Controls
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Effectiveness of Controls
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Internal Control Weaknesses That Contributed to Fraud
29.3%
20.3%
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Internal Control Weaknesses That Contributed to Fraud
Behavioral Red Flags Displayed by Perpetrators
• Fraud perpetrators display behavioral warning signs.
• At least one of these “red flags” was exhibited in 78.9% of the cases.
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Behavioral Red Flags Displayed by Perpetrators
45.8%30.0%
20.1%
Action Taken Against Perpetrator
• Most occupational fraudsters are first time offenders.
• In 40.7% of the cases victim organization decided not to refer fraud cases to law enforcement.– Fear of bad publicity being most often cited
reason
• Criminal and/or civil prosecution accounts for the remaining cases.
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Criminal Prosecutions
59.3%
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Criminal Prosecutions
56.8% 19.6%
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Criminal Prosecutions
39.0%
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Civil Suits
23.1%
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Civil Suits
40.4%
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Recovery of Losses
58.1%
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Action Taken Against Perpetrator
64.1%
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In Closing…
• In its early stages fraud and stupidity look a lot alike.
• Fraud indicators can often be explained away by claiming “oh, that was a stupid mistake.”
• Further investigation of “stupid mistakes” is always warranted.
• Follow-up is also critical.
• If you see something, say something.
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Download Your own Copy
• Want a PDF of the entire report?
• Go to:
• http://www.acfe.com/rttn2016.aspx
– Click Resources then Downloads
• https://s3-us-west-2.amazonaws.com/acfepublic/2016-report-to-the-nations.pdf
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The Accounts Payable & Procure-To-Pay Conference & Expo is produced by: 459/16/2016
Allan Bachman, CFE
Education Manager
Association of Certified Fraud Examiners
Thank youContact Information
512-276-8158
LinkedIn: Allan Bachman, CFE