The ACFE has released its 2012 Global Fraud Study and many of the findings aren’t surprising. As in previous years, the study found that the typical organization loses five per cent of revenue to fraud and that fraud is still a huge problem for organizations all over the world. Does this mean that companies are turning a blind eye to crime, just too busy with day-to-day business to think about fraud prevention or think they’re immune?
“There is still a feeling among many organizations that occupational fraud is something that happens to the other guy, not to them,” says James Ratley, ACFE President and CEO. “In the last ten years that attitude is not as strong as it used to be – fraud awareness has definitely risen – but it is still there.”
Big Losses = Bad Business
Ratley hopes that fraud studies, such as this one, cause organizations to realize that the costs of investing in fraud prevention and detection outweigh the risks of ignoring the problem.
“The median loss among fraud cases in our study was $140,000. Over 20 per cent of those cases caused at least $1 million in losses. It’s not good business to ignore those numbers,” says Ratley.
Fraud is Global
“Perhaps the most surprising thing we learned is how similarly fraud affects organizations regardless of the country in which the fraud occurs,” he says. “We had cases reported from nearly 100 countries, and when you look at the trends, with a few exceptions, the demographics of the fraud offenders and the victims remain very consistent across all regions. This tells us that occupational fraud is truly a global problem and it’s likely why ACFE’s membership outside the United States has grown so significantly over the last few years.”
With so many companies expanding overseas, especially into emerging markets, it makes sense to pay attention to these statistics and plan for fraud prevention and detection programs in every location in which your business operates.
Consistent Red Flags
The ACFE has identified 16 common behavioral characteristics of occupational fraudsters, and the 2012 study showed that in 81 per cent of the frauds reported, at least one, and often several, behavioral red flags were exhibited before the fraud was discovered. The frequency of red flags identified in the 2012 study was very similar to the frequency identified in the studies from 2010 and 2008.
“We think this finding could be important in helping organizations identify non-financial indicators of fraud,” says Ratley. “For instance, if managers and auditors were better trained to identify these behavioral red flags then that information – combined with audits and other anti-fraud measures – could potentially help catch frauds much earlier and limit losses,” he says.
5 Steps to Take Now
Armed with the information from the ACFE’s Global Fraud Study, businesses should take the following steps to reduce fraud, says Ratley:
- Make sure you and everyone in your organization understand that fraud is a huge risk, and know where you are vulnerable.
- Establish anti-fraud controls that address your particular risks, and then make sure everyone in the organization adheres to them.
- Educate employees and managers about fraud so they know when to report suspicious behavior and why it is important to do so.
- Establish an anti-fraud policy or a code of conduct, which makes it clear to all employees the kinds of conduct that are and are not tolerated by the organization. This will help employees stay away from gray areas where they could potentially veer into unethical or illegal behavior. Setting this kind of tone at the top is very important.
- Have a mechanism in place so that employees, vendors and customers can report fraud anonymously, so they won’t fear retaliation.