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Focus on Fraud & Forensics: 2014 Report to the Nations on Occupational Fraud and Abuse

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The Association of Certified Fraud Examiners’ (ACFE) 2014 Report to the Nations on Occupational Fraud and Abuse was recently released detailing the current trends and findings in the areas of fraud detection and prevention. 
June 13, 2014

The Association of Certified Fraud Examiners’ (ACFE) 2014 Report to the Nations on Occupational Fraud and Abuse was recently released detailing the current trends and findings in the areas of fraud detection and prevention.  The ACFE has undertaken extensive research into the costs and trends related to fraud. The results of their initial research efforts were contained in the inaugural Report to the Nations on Occupational Fraud and Abuse, which was released in 1996. Since then they have continued and expanded their research, with subsequent reports released biennially since 2002.

Although the types of fraud affecting organizations vary widely, the research contained in this report and its predecessors focuses on a particularly pervasive form - occupational fraud, which is defined as:

The use of one’s occupation for personal enrichment through the deliberate misuse or misapplication of the employing organization’s resources or assets.

Put more simply, occupational frauds are those schemes in which a person defrauds his or her employing organization. By its very nature, this form of fraud is a threat to all organizations that employ individuals to perform their business functions.

To explore and illuminate this risk, each of the ACFE’s reports has been based on detailed information about specific cases of occupational fraud investigated by Certified Fraud Examiners (CFEs), and all reports have the same goals:

  • To summarize the opinions of experts on the percentage of organizational revenue lost to fraud each year.
  • To categorize the ways in which occupational fraud and abuse occur.
  • To analyze the characteristics of the individuals who commit occupational fraud and abuse.
  • To examine the characteristics of the organizations that are victimized by occupational fraud and abuse.

In furtherance of these goals, the 2014 Report contains an analysis of 1,483 cases of occupational fraud that occurred in more than 100 countries.

Some of the key findings in the report include:

  • Survey participants estimated 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 the frauds in the 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 was 18 months.
  • Occupational frauds can be classified into three primary categories: asset misappropriations, corruption and financial statement fraud. Of these, asset misappropriations are the most common, occurring in 85% of the cases in the study, as well as the least costly, causing a median loss of $130,000. In contrast, only 9% of cases involved financial statement fraud, but those cases had the greatest financial impact, with a median loss of $1 million. Corruption schemes fell in the middle in terms of both frequency (37% of cases) and median loss ($200,000).
  • 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.

RubinBrown believes this report offers a great deal of useful information in the area of occupational fraud and is a valuable reference for all organizations.

Click here to read the current report.

 

Under U.S. Treasury Department guidelines, we hereby inform you that any tax advice contained in this communication is not intended or written to be used, and cannot be used by you for the purpose of avoiding penalties that may be imposed on you by the Internal Revenue Service, or for the purpose of promoting, marketing or recommending to another party any transaction or matter addressed within this tax advice. Further, RubinBrown LLP imposes no limitation on any recipient of this tax advice on the disclosure of the tax treatment or tax strategies or tax structuring described herein.

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