Annual Study Shows Widespread Nature of Workplace Fraud

The typical organization loses about 5% of its annual revenues to fraud, according to latest study by the Association of Certified Fraud Examiners.

The 2014 Report to the Nations on Occupational Fraud and Abuse projects global fraud at almost $3.7 trillion. The median loss caused by fraud in the study was $145,000, and another 22% of cases involved losses of at least $1 million.

Most cases are reported in banking and financial services, government and public administration, and manufacturing sectors. The largest reported median losses, however, are in mining, real estate, and oil and gas industries, according to the study. The 2014 report is based on 1,483 cases of occupational fraud, as reported by the Certified Fraud Examiners (CFEs) who investigated them.

Other findings:

  • The median duration — the amount of time from when the fraud began until it was detected — was 18 months.
  • Occupational frauds can be classified into three primary categories: asset misappropriations, corruption and financial statement fraud. Asset misappropriations are the most common, occurring in 85% of the cases, as well as the least costly, causing a median loss of $130,000.
  • 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.
  • The smallest organizations tend to suffer disproportionately large losses due to occupational fraud.
  • The higher the perpetrator’s level of authority, the greater fraud losses tend to be.
  • Collusion helps employees evade independent checks and other anti-fraud controls, enabling them to steal larger amounts.

 

The study recommends action to catch frauds early. Many of the most effective anti-fraud controls are being overlooked by a large number of organizations, the study says. For example, proactive data monitoring and analysis was used by only 35% of the victim organizations in the study, but this control was correlated with frauds that were 60% less costly and 50% shorter in duration. Detection methods include fraud hotlines, management reviews, internal audits and employee monitoring mechanisms.