The ACFE’s 2010 Report to the Nations on Occupational Fraud and Abuse is based on data compiled from a study of 1,843 cases of occupational fraud that occurred worldwide between January 2008 and December 2009. All information was provided by the Certified Fraud Examiners (CFEs) who investigated those cases. The fraud cases in our study came from 106 nations — with more than 40% of cases occurring in countries outside the United States — providing a truly global view into the plague of occupational fraud.
This allowed the ACFE to more fully explore the truly global nature of occupational fraud and provides an enhanced view into the severity and impact of these crimes. Additionally, ACFE were able to compare the anti-fraud measures taken by organizations worldwide in order to give fraud fighters everywhere the most applicable and useful information to help them in their fraud prevention and detection efforts.
Survey participants estimated that the typical organization loses 5% of its annual revenue to fraud. Applied to the estimated 2009 Gross World Product, this figure translates to a potential total fraud loss of more than $2.9 trillion. The median loss caused by the occupational fraud cases in the ACFE study was $160,000. Nearly one-quarter of the frauds involved losses of at least $1 million. The frauds lasted a median of 18 months before being detected.
Tips were by far the most common detection method (40.2%), catching nearly three times as many frauds as any other form of detection. This is consistent with the findings of ACFE reports since 2002 . Tips remain by far and away the most common means of detection. Management review and internal audit were the second and third most common forms of detection, uncovering 15% and 14% of frauds, respectively. It is also noting that 11% of frauds were detected through channels that lie completely outside of the traditional anti-fraud control structure: accident, police notification and confession. In other words, 11% of the time, the victim organization either had to stumble onto the fraud or be notified of it by a third party in order to detect it.
The report highlighted that only 25% of Australian (Oceania) organisations had hotlines compared with more than one-half of USA entities even though disclosures (tips) were the major source for highlighting fraud.
The Association of Certified Fraud Examiners recommended “Organisations should implement hotlines to receive tips from both internal and external sources. Such reporting mechanisms should allow anonymity and confidentiality, and employees be encouraged to report suspicious activity without fear of reprisal.”
The ACFE also found the organisations tend to over-rely on audits. Employee education is the foundation of preventing and detecting occupational fraud combined with tip off hotlines. Internal controls alone are insufficient to fully prevent occupational fraud.