2016 Global Fraud Study Results

The 2016 Report to the Nations has been published by the Association of Certified Fraud Examiners and can be accessed in full here: 2016 Global Fraud Study.

Here are some highlights directly from the report I thought may be of interest to the followers of this blog:

• The median loss for all cases in our study was $150,000, with 23.2% of cases causing losses of $1 million or more.
• The median loss suffered by small organizations (those with fewer than 100 employees) was the same as that incurred by the largest organizations (those with more than 10,000 employees). However, this type of loss is likely to have a much greater impact on smaller organizations.
• Among the various forms of asset misappropriation, billing schemes and check tampering schemes posed the greatest risk based on their relative frequency and median loss.
• Organizations of different sizes tend to have different fraud risks. Corruption was more prevalent in larger organizations, while check tampering, skimming, payroll, and cash larceny schemes were twice as common in small organizations as in larger organizations.
• The most common detection method in our study was tips (39.1% of cases), but organizations that had reporting hotlines were much more likely to detect fraud through tips than organizations without hotlines (47.3% compared to 28.2%,  respectively).
• When fraud was uncovered through active detection methods, such as surveillance and monitoring or account reconciliation, the median loss and median duration of the schemes were lower than when the schemes were detected through passive  methods, such as notification by police or by accidental discovery.
• The presence of anti-fraud controls was correlated with both lower fraud losses and quicker detection. We compared organizations that had specific anti-fraud controls in place against organizations lacking those controls and found that where  controls were present, fraud losses were 14.3%–54% lower and frauds were detected 33.3%–50% more quickly.
• The perpetrator’s level of authority was strongly correlated with the size of the fraud. The median loss in a scheme committed by an owner/executive was $703,000. This was more than four times higher than the median loss caused by managers ($173,000) and nearly 11 times higher than the loss caused by employees ($65,000).
• More occupational frauds originated in the accounting department (16.6%) than in any other business unit. Of the frauds we analyzed, more than three-fourths were committed by individuals working in seven key departments: accounting, operations, sales, executive/upper management, customer service, purchasing, and finance.
• Fraud perpetrators tended to display behavioral warning signs when they were engaged in their crimes. The most common red flags were living beyond means, financial difficulties, unusually close association with a vendor or customer, excessive control issues, a general “wheeler-dealer” attitude involving unscrupulous behavior, and recent divorce or family problems. At least one of these red flags was exhibited during the fraud in 78.9% of cases.

These were just highlights, the 92 page report has much more detail if you are at all interested, however, hopefully the bullet points above give you a good idea of the fraud risks all entities face.  Also, here is a recent article from CLA discussing practices that can help prevent fraud in your agribusiness: Eight Practices That Help Prevent Fraud in Your Agribusiness.

David Enquist, CPA

CliftonLarsonAllen, LLP