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The Financial Impact of Fraud

Posted by Traci A. Malik Posted on Mar 17 2016

Source: Summary of Findings – From the 2014 Global Fraud Study (ACFE)

According to the 2014 Report to the Nation on Occupational Fraud and Abuse (copyright 2014 by the Association of Certified Fraud Examiners, Inc.), research shows that the typical organization loses 5% of its annual revenue each year due to employee fraud. Prevention and detection are crucial to reducing this loss.

 

The median loss caused by the frauds in our study was $145,000. Additionally, 22% of the cases involved losses of at least $1 million.

 

The median duration — the amount of time from when the fraud commenced until it was detected — for the fraud cases reported to us was 18 months.

 

Many cases involve more than one category of occupational fraud. Approximately 30% of the schemes in our study included two or more of the three primary forms of occupational fraud.

 

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 smallest organizations tend to suffer disproportionately large losses due to occupational fraud. Additionally, the specific fraud risks faced by small businesses differ from those faced by larger organizations, with certain categories of fraud being much more prominent at small entities than at their larger counterparts.

 

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.

 

Approximately 77% of the frauds in the study were committed by individuals working in one of seven departments: These departments include accounting, operations, sales, executive/upper management, customer service, purchasing and finance.

 

It takes time and effort to recover the money stolen by perpetrators, and many organizations are never able to fully do so. At the time of our survey, 58% of the victim organizations had not recovered any of their losses due to fraud, and only 14% had made a full recovery.

 

To find out more about fraud or to schedule a private consultation, contact us at 727-845-4166.

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