Complacency about Fraud Exacts a Heavy Cost

The Association of Certified Fraud Examiners (ACFE) has produced a new infographic, “The Cost of Complacency”, warning about the costs to organizations of being overly complacent about financial fraud.

The data was compiled by the ACFE for its 2014 Report to the Nations on Occupational Fraud and Abuse. Here are a few highlights from the annual report about fraud and internal controls:

•  Survey participants estimated that the typical organization loses 5% of revenues each year to fraud. If applied to the 2013 estimated Gross World Product, this translates to a potential projected global fraud loss of nearly $3.7 trillion.
• The median loss caused by frauds in the ACFE study was $145,000. In addition, 22 percent of the cases involved losses of at least $1 million.
• Tips are consistently and by far the most common detection method. Over 40% of all cases were detected by a tip — more than twice the rate of any other detection method. Employees accounted for nearly half of all tips that led to the discovery of fraud.
• Organizations with hotlines were much more likely to catch fraud by a tip, which our data shows is the most effective way to detect fraud. These organizations also experienced frauds that were 41% less costly, and they detected frauds 50% more quickly.
• The higher the perpetrator’s level of authority, the greater fraud losses tend to be. Owners/executives only accounted for 19% of all cases, but they caused a median loss of $500,000. Employees, conversely, committed 42% of occupational frauds but only caused a median loss of $75,000. Managers ranked in the middle, committing 36% of frauds with a median loss of $130,000.
• The median duration—the amount of time from when the fraud commenced until it was detected—was 18 months.

The 2014 Report to the Nations includes data from 1,483 cases of fraud submitted by CFEs globally. The full report is available for download online at ACFE.com/RTTN.

Special thanks to David Enquist for writing this post.

Paul Neiffer, CPA