REPORT TO THE NATIONS
2018 GLOBAL STUDY ON OCCUPATIONAL FRAUD AND ABUSE
FOREWORD
Bruce Dorris, J.D., CFE, CPA
President and CEO,
Association of Certified
Fraud Examiners
With the publication of the 2018 Report to the Nations, I am
struck by how this study, like the Association of Certified Fraud
Examiners itself, is in many ways a tribute to the vision and
dedication of our founder and chairman, Dr. Joseph T. Wells,
CFE, CPA. When Dr. Wells created the ACFE, he did so because
he recognized there was a fundamental flaw in how organizations were attempting to prevent, detect, and investigate fraud.
His goal in founding our association was to establish a body of
knowledge and training that would help anti-fraud professionals
reduce the incidence of fraud and white-collar crime.
One thing Dr. Wells came to recognize in the early days of the
ACFE was that the anti-fraud profession suffered from a glaring
weakness: we simply did not know enough about the crimes we
were trying to fight. So, with the aid of ACFE researchers John
Warren and Andi McNeal, he set out to address the problem by
commissioning the first Report to the Nation in 1996.
The 2018 report is the 10th edition of Dr. Wells’ study, and the Report to the Nations remains the most comprehensive and widely
quoted source of occupational fraud data in the world. Based
on information from real fraud cases as reported by CFEs from
around the globe, the report continues to be a tremendous resource for those interested in how occupational fraud is committed, how it is detected, who commits it, and how organizations
can protect themselves from it.
On behalf of the ACFE, I am proud to present the 2018 edition of
the Report to the Nations.
Bruce Dorris, J.D., CFE, CPA
President and CEO,
Association of Certified Fraud Examiners
2
Foreword Report to the Nations
CONTENTS
Key Findings
4
Introduction
6
The Cost of Occupational Fraud
Collusion by Multiple Perpetrators
42
Perpetrator’s Criminal Background
42
Perpetrator’s Employment History
43
8
Behavioral Red Flags Displayed by Perpetrators
43
Projecting Total Fraud Losses Based on Imperfect Data
8
Spotlight: The Red Flags of Fraud
44
The Fraud Costs We Know
8
Non-Fraud-Related Misconduct by Perpetrators
46
How Occupational Fraud Is Committed
10
Human Resources-Related Red Flags
46
Categories of Occupational Fraud
10
Case Results
47
Spotlight: Corruption
13
Internal Action Taken Against Perpetrator
47
Duration of Fraud Schemes
14
Criminal Prosecutions and Civil Suits
48
Spotlight: Concealing Fraud
14
Spotlight: When Victim Organizations are Fined
50
Detection
16
Spotlight: Recovering Fraud Losses
51
Initial Detection of Occupational Frauds
16
Methodology
Tip Sources
17
Analysis Methodology
52
Median Loss and Duration by Detection Method
18
Survey Participants
54
Spotlight: Hotlines and Reporting Mechanisms
19
Regional Focus
56
Victim Organizations
20
52
Asia-Pacific
56
Type of Organization
20
Canada
58
Size of Organization
21
Eastern Europe and Western/Central Asia
60
Spotlight: Fraud in Small Businesses
22
Latin America and the Caribbean
62
Industry of Organization
24
Middle East and North Africa
64
Anti-Fraud Controls at the Victim Organization
26
Southern Asia
66
Perpetrators
33
Sub-Saharan Africa
68
Perpetrator’s Position
33
United States
70
Perpetrator’s Tenure
34
Western Europe
72
Spotlight: Fraud Committed by Owners and Executives
34
Index of Figures
74
Perpetrator’s Department
36
Perpetrator’s Gender
39
Fraud Prevention Checklist
76
Perpetrator’s Age
41
Glossary of Terminology
78
Perpetrator’s Education Level
41
About the ACFE
79
Contents Report to the Nations
3
KEY FINDINGS
2,690
real cases of
occupational fraud
$7 billion+
IN TOTAL LOSSES
$130,000
from
125
23
MEDIAN LOSS PER CASE
countries
MONTHS
22%
in
industry
categories
OF CASES CAUSED
LOSSES OF
Corruption
$1 million+
Asset Misappropriation schemes
$800,000
median loss
was the most common scheme
in every global region
Tips
are by far the most common
initial detection method
��
��
��
are the most common and least costly
tips
$114,000
median loss
Median duration
of a fraud scheme
40%
89%
of cases
employees
financial statement
fraud schemes
are the least common
and most costly
provide over half
of tips, and nearly
1/3 come from
outside parties
10%
of cases
internal
audit
15%
4
Key Findings Report to the Nations
13%
Organizations with hotlines
detect fraud by tips more often
46%
OF CASES
DETECTED
BY TIP
HOTLINES
SMALL BUSINESSES
LOST ALMOST
TWICE AS MUCH
PER SCHEME
TO FRAUD
management
review
30%
OF CASES
DETECTED
BY TIP
NO HOTLINES
$104,000
$200,000
100+ EMPLOYEES
<100 EMPLOYEES
MEDIAN LOSS
MEDIAN LOSS
INTERNAL CONTROL WEAKNESSES
WERE RESPONSIBLE FOR NEARLY
HALF OF FRAUDS
Owners/executives
accounted for
a small percentage
of cases
Losses caused by men
were 75% larger
than losses caused by women
1
ALL 18 ANTI-FRAUD CONTROLS
ANALYZED WERE ASSOCIATED
WITH LOWER FRAUD LOSSES
AND QUICKER DETECTION
$$$$$$$
19%
of cases
$74,000
2
but caused a
median loss of
$850,000
largest reductions in fraud loss and duration
���
���
Data monitoring/
analysis
lower losses
51%
lower losses
���
���
58%
faster detection
Surprise
audits
54%
faster detection
Yet only 37% of victim organizations
implemented these controls
$$$$$$$$$$$$$$
$150,000
3+
$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$
$339,000
85%
MORE THAN 5 YEARS’ TENURE
$200,000
of fraudsters
MEDIAN LOSS
displayed at least
one behavioral
LESS THAN 5 YEARS’ TENURE
red flag
of fraud
Over the past 10 years, occupational fraud
referrals to prosecution declined 16%
TOP REASON FOR
NON-REFERRALS WAS
FEAR OF BAD
PUBLICITY
when fraudsters
collude
FRAUDSTERS WHO HAD BEEN
WITH THEIR COMPANY LONGER
STOLE TWICE AS MUCH
DATA MONITORING/ANALYSIS and
SURPRISE AUDITS were correlated with the
52%
median losses
are far greater
-16%
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
$100,000
MEDIAN LOSS
Only 4%
OF PERPETRATORS
HAD A PRIOR
FRAUD CONVICTION
A MAJORITY OF THE VICTIMS RECOVERED NOTHING
Key Findings Report to the Nations
5
INTRODUCTION
Fraud in general poses a tremendous
threat to organizations of all types
and sizes, in all parts of the world.
Among the various kinds of fraud that organizations
might be faced with, occupational fraud is likely the
largest and most prevalent threat. Occupational
fraud1—fraud committed against the organization by
its own officers, directors, or employees—constitutes
an attack against the organization from within, by the
very people who were entrusted to protect its assets
and resources. Since we began tracking data on
occupational fraud cases in 1996, we have reviewed
thousands of cases in which insiders collectively
stole billions of dollars from their employers, and
those cases were merely a drop in the bucket. There
are millions of business and government organizations operating throughout the world and every one
of them, in some way, is vulnerable or potentially
vulnerable to fraud committed by their employees.
Most of those employees will never steal or abuse
the trust that has been placed in them, but the ones
who do can cause enormous damage. It is because
of this risk that we continue to study these frauds
and publish the Report to the Nations.
This study contains an analysis of 2,690 cases of
occupational fraud that were investigated between
January 2016 and October 2017. The data presented herein is based on information provided by the
Certified Fraud Examiners who investigated those
cases. Their firsthand experience with these frauds
provides an invaluable resource for helping us un-
The goal of the Report to the Nations
is to compile detailed information
about occupational fraud cases in
five critical areas:
The methods by which occupational
fraud is committed
The means by which occupational frauds
are detected
The characteristics of the organizations
that are victimized by occupational fraud
The characteristics of the people who
commit occupational fraud
The results of the cases after the frauds
have been detected and the perpetrators
identified
derstand occupational fraud and the impact it has on
organizations.
The data we have gathered provides a broad and
deeply representative picture of occupational fraud’s
impact. The cases in this study include frauds committed against organizations in 23 major industry
categories. Victim organizations range from small local
Occupational fraud 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.
1
6
Introduction Report to the Nations
businesses to multinational corporations with thousands of employees. These frauds were committed by
individuals who worked in virtually every part of the
organization, from entry-level employees to C-suite
executives.
The cases we studied occurred in 125 countries
throughout the world, which helps us develop a global
view of the costs, methods, victims, and perpetrators of
these crimes. Figure 1 shows the number of cases from
nine key geographical regions, along with the median loss per fraud in each of those regions. (Readers
should note that the number of cases per region largely
reflects the geographical distribution of ACFE membership, so this data should not be taken to mean that
fraud is more or less likely in any particular region.)
Our hope is that the findings in this report will be of
value to anti-fraud professionals, organizational man-
agers, researchers, and the public at large. Readers
will find a wealth of information about the methods,
causes, costs, and indicators of occupational fraud, as
well as important information on how to prevent and
detect it. This study is the 10th edition of the Report
to the Nations, and occupational fraud remains an
enormous threat to the global economy, just as it was
when we published the first edition in 1996. But in the
time since that first report, we have seen organizations make tremendous strides in terms of awareness,
along with significant advancements in their ability to
combat these crimes. Such advances are only possible when there is a true understanding of the nature
and extent of the threat that must be dealt with. We
publish this 2018 Report to the Nations hoping it will
advance the collective understanding and awareness
of occupational fraud risk for all those concerned.
FIG. 1 Countries with reported cases and median loss for each region2
United States
MEDIAN
LOSS:
CASES: 1,000 (48%)
$108,000
Western Europe
MEDIAN
LOSS:
2
LOSS:
CASES: 130 (6%)
LOSS: $100,000
MEDIAN
MEDIAN
$200,000
Southern Asia
Sub-Saharan Africa
Latin America
and the Caribbean
MEDIAN
LOSS:
CASES: 96 (5%)
$90,000
$193,000
Eastern Europe and
Western/Central Asia
MEDIAN
LOSS:
$150,000
CASES: 267 (13%)
Asia-Pacific
MEDIAN
LOSS:
CASES: 110 (5%)
Middle East
and North Africa
MEDIAN
LOSS:
CASES: 86 (4%)
$236,000
$200,000
Canada
MEDIAN
LOSS:
$200,000
CASES: 220 (11%)
CASES: 101 (5%)
CASES: 82 (4%)
Geographical information was provided in 2,092 of the cases submitted. See pgs. 56–73 for lists of cases submitted by country.
Introduction Report to the Nations
7
THE COST OF
OCCUPATIONAL
FRAUD
How much money do
organizations lose as a
result of fraud?
Anti-fraud professionals know just
how devastating a fraud can be to
its victims. But they are not the only
ones who benefit from insight into
the amount of damage that fraud
causes organizations and their stakeholders. Business leaders need to
understand how much is at stake
as they assess their risks and make
resource-allocation decisions. Regulators need to determine where to
focus their enforcement efforts. Investors and customers need to make
informed decisions about where
to direct their own money. And the
media desires context and direction
for helping to raise awareness of the
issue to the general public.
Accordingly, providing a measure of the cost of fraud
is an incredibly important endeavor. It is also an
incredibly difficult one, given the number of unknown
factors required to make such an estimate. No one
knows the amount of frauds that go undetected or
unreported, and even for those frauds that do come to
light, the full amount of loss might never be calculated.
Such limitations mean that any attempts to quantify
the global amount of fraud will be imperfect.
Projecting Total Fraud Losses
Based on Imperfect Data
Even with these limitations on projecting the total
amounts lost to fraud, however, we know that such a
projection has an important place in the fight against
fraud. Consequently, we asked survey participants,
based on their professional experience, what percentage of revenues they believe a typical organization loses to fraud each year. The median response
provided by these CFEs is that organizations lose 5%
of their annual revenues to fraud. While this number
is only a general estimate based on the opinions of
the CFEs who took part in our study, it represents the
collective observations of more than 2,000 anti-fraud
experts who together have investigated hundreds
of thousands of fraud cases. To place their estimate
in context, if the 5% loss estimate were applied to
the 2017 estimated Gross World Product of USD
79.6 trillion, it would result in a projected total global
fraud loss of nearly USD 4 trillion.3 To be clear, this
number is only an estimate and, given the limitations
described above, it is unlikely we will ever be able
to calculate the true cost of fraud on a global scale.
But we can be certain that the amount of damage is
incredibly large, and this estimate, provided by anti-fraud professionals who work to prevent and detect
fraud on a daily basis, helps give us some insight into
just how big the problem may be.
The Fraud Costs We Know
Determining total fraud losses—whether globally, regionally, by industry, or even within a specific organization—is outside the primary scope of our study. Instead,
we focus on analyzing known data to better under-
See https://www.cia.gov/library/publications/the-world-factbook/geos/
xx.html (retrieved March 22, 2018).
3
8
The Cost of Occupational Fraud Report to the Nations
that end, we examined the losses incurred in the
FIG. 2 How much does an occupational fraud cost
the victim organization?
actual cases of fraud reported to us to learn about
Less than $200,000
stand the risks posed by occupational fraud. To
how fraud affects its victims.
The total loss caused by the cases in our study
55%
$200,000–$399,999
exceeded USD 7.1 billion. While we do not know
4
11%
the total number of cases of fraud that occurred
globally during our study period, it is safe to as-
$400,000–$599,999
sume that the 2,690 cases included in our study
7%
represent only a tiny fraction of the frauds committed against organizations worldwide during
$600,000–$799,999
that time. Thus, the USD 7.1 billion in known losses—while staggering on its own—does not come
close to representing the total amount lost to
3%
$800,000–$999,999
fraud. The true global cost of fraud is likely magnitudes higher, especially when factoring in the
indirect costs, such as reputational harm and loss
of business during the aftermath of a scandal.
2%
$1 million or more
22%
The mean, or average, loss due to the frauds in
our study was USD 2.75 million,5 which is also an
enormous amount when considering how much
damage such a loss represents to most organizations. However, due to the presence of several
very large frauds in our data, this amount likely
does not illustrate the typical fraud case. Consequently, throughout this report we use median
loss calculations, rather than mean, to provide
Throughout this report, we further examine
these losses through different lenses, based
on the specific schemes, victim organizations,
perpetrators involved, and other factors.
We hope that our research into and analysis of these cases
helps shed additional light on the way that fraud impacts
the global business community and its stakeholders.
a more accurate representation of how fraud
typically affects organizations.
The median loss for all cases in our study was
USD 130,000. Figure 2 shows the loss distribution
of the cases. While 55% caused less than USD
200,000 in financial damage, more than one-fifth
resulted in a loss of at least USD 1 million.
The total losses represented in our study were actually significantly higher than USD 7.1 billion. However, our survey results
included a few cases with losses so large that including them in the
total loss figure may have enabled them to be identified. To avoid
compromising the confidentiality of our survey participants, we
winsorized the top and bottom 1% of the data used in this total loss
calculation (i.e., assigned all cases in the top 1% and bottom 1% the
same value as the 99th percentile and 1st percentile, respectively).
While including those cases would increase the total loss amount
figure substantially, we believe it prudent to both ensure those
cases remain unidentified and conservatively report loss amounts.
4
5
As with the total loss figure, the top and bottom 1% of the data
were winsorized for purposes of the average loss calculation.
The Cost of Occupational Fraud Report to the Nations
9
HOW
OCCUPATIONAL
FRAUD IS
COMMITTED
FIG. 3 How is occupational fraud committed?
89%
One of the goals of the first Report to the
Nation was to examine the methods by
which fraudsters commit their schemes,
and we have continued this line of study in
every subsequent report. Over the last two
decades, even with tremendous technological development and numerous changes in
the global business and regulatory environments, our research shows that occupational fraud falls into several time-tested categories. The taxonomy of these categories
is illustrated in the Occupational Fraud and
Abuse Classification System, also known as
the Fraud Tree, as depicted in Figure 4.
PERCENT OF CASES
What methods do
fraudsters use to
commit their schemes?
38%
10%
Asset
misappropriation Corruption
Financial
statement fraud
$114,000
Categories of Occupational Fraud
Of the three primary categories of occupational fraud,
asset misappropriations are by far the most common,
occurring in 89% of the cases in our study. However,
they are also the least costly, causing a median loss of
USD 114,000. Corruption schemes are the next most
common form of occupational fraud; 38% of the cases
in our study involved some form of corrupt act. These
schemes resulted in a median loss to the victim organizations of USD 250,000. The least common and most
costly form of occupational fraud is financial statement
fraud, which occurred in 10% of the cases and caused a
median loss of USD 800,000.
10
How Occupational Fraud Is Committed Report to the Nations
MEDIAN LOSS
$250,000
$800,000
FIG. 4 Occupational Fraud and Abuse Classification System (the Fraud Tree)6
Corruption
Asset Misappropriation
Financial Statement Fraud
Net Worth/
Net Income
Overstatements
Net Worth/
Net Income
Understatements
Invoice
Kickbacks
Timing
Differences
Timing
Differences
Bid Rigging
Fictitious
Revenues
Understated
Revenues
Concealed
Liabilities and
Expenses
Overstated
Liabilities and
Expenses
Improper
Asset
Valuations
Improper
Asset
Valuations
Improper
Disclosures
Improper
Disclosures
Conflicts of
Interest
Bribery
Purchasing
Schemes
Sales
Schemes
Illegal Gratuities
Economic
Extortion
Inventory and All
Other Assets
Cash
Theft of Cash
on Hand
Theft of Cash
Receipts
Skimming
Sales
Unrecorded
Understated
Receivables
Write-Off
Schemes
Lapping
Schemes
Unconcealed
Cash Larceny
Refunds
and Other
Fraudulent
Disbursements
Misuse
Billing
Schemes
Payroll
Schemes
Expense
Reimbursement
Schemes
Check and
Payment
Tampering
Register
Disbursements
Shell
Company
Ghost
Employee
Mischaracterized
Expenses
Forged Maker
False Voids
NonAccomplice
Vendor
Falsified
Wages
Overstated
Expenses
Personal
Purchases
Commission
Schemes
Fictitious
Expenses
Altered Payee
Multiple
Reimbursements
Authorized
Maker
Forged
Endorsement
Larceny
Asset
Requisitions
and Transfers
False Sales
and Shipping
Purchasing
and Receiving
False Refunds
Unconcealed
Larceny
6
The definitions for many of the categories of fraud schemes in the Fraud Tree are found in the Glossary of Terminology on pg. 78. In previous reports, the category
check and payment tampering was referred to simply as check tampering. However, to better reflect the increasing shift toward electronic payment methods, we
have changed the category title.
How Occupational
Committed Report
to Committed
the Nations
Report
to the NationsFraud
HowIsOccupational
Fraud Is
11
When assessing an
organization’s fraud risks
and designing anti-fraud
controls, it is important to
remember that fraudsters
typically seize whatever
opportunity arises when
committing their schemes.
Thus, many frauds—
including nearly one-third
of the cases in our study,
as illustrated in Figure
5—involve more than one
form of occupational fraud.
FIG. 5 How often do fraudsters commit more than one type of occupational
fraud?
Financial
statement fraud
Asset
misappropriation
Corruption
Asset Misappropriation
Sub-Schemes
Within the category of
asset misappropriation,
our research shows that
there are several distinct sub-categories of
schemes. The heat map
in Figure 6 illustrates the
relative frequency and cost
of each of these scheme
types. The schemes falling
in the darkest area of the
heat map—check and payment tampering,7 billing,
and theft of noncash assets—rank among the most
common and the costliest
scheme types and thus
typically pose the greatest
risk to organizations.
Asset misappropriation only
57%
Asset misappropriation and corruption
23%
Corruption only
9%
Corruption, asset misappropriation, and financial statement fraud
4%
Asset misappropriation and financial statement fraud
3%
Financial statement fraud only
1%
Corruption and financial statement fraud
1%
FIG. 6 What asset misappropriation schemes present the greatest risk?
Check and payment tampering
$150,000 (12%)
Billing
$100,000 (20%)
Noncash
$98,000 (21%)
In previous reports, this category
was referred to simply as check
tampering. However, to better
reflect the increasing shift toward
electronic payment methods, we
have changed the category title to
check and payment tampering.
7
Payroll
$63,000 (7%)
Register disbursements
$29,000 (3%)
LESS RISK
12
How Occupational Fraud Is Committed Report to the Nations
Cash larceny
$75,000 (11%)
Skimming
$50,000 (11%)
Expense reimbursements
$31,000 (14%)
Cash on hand
$20,000 (15%)
MORE RISK
CORRUPTION
Corruption represents one of the most significant fraud risks for organizations in many
industries and regions. Understanding the specific factors involved in corruption schemes
can help organizations effectively prevent, detect, and investigate them.
Percent of cases involving
corruption
40%
Industries with highest
proportion of
WESTERN
EUROPE
CANADA
CORRUPTION CASES:
60%
36%
EASTERN EUROPE AND
WESTERN/CENTRAL ASIA
30%
51%
UNITED STATES
62%
49%
53%
ASIA-PACIFIC
MIDDLE EAST AND
____NORTH AFRICA
51%
SOUTHERN
ASIA
ENERGY
SUB-SAHARAN
AFRICA
LATIN AMERICA
AND THE
CARIBBEAN
49%
51%
MANUFACTURING
70%
of corruption cases were perpetrated by
someone in a POSITION OF AUTHORITY
38%
27% EMPLOYEE
32%
3% OTHER
82%
of corruption cases were
committed by males
MANAGER
OWNER/
EXECUTIVE
50%
GOVERNMENT
AND PUBLIC
ADMINISTRATION
WHILE ONLY
18%
of corruption cases were
committed by females
50
%
OF CORRUPTION CASES
TOP RED FLAGS
in corruption cases
43%
34%
23%
21%
were detected
by a tip
Living beyond means
Unusually close association with vendor/customer
Financial difficulties
“Wheeler-dealer” attitude
How Occupational Fraud Is Committed Report to the Nations
13
Duration of
Fraud Schemes
FIG. 7 How does the duration of a fraud relate to median loss?
27%
PERCENT OF CASES
19%
13%
11%
10%
8%
6%
5%
6 months
or less
$30,000
7–12
months
13–18
months
19–24
months
25–36
months
37–48
months
49–60
months
More than
60 months
$75,000
$125,000
$200,000
MEDIAN LOSS
Examining how long frauds
tend to last can also provide
insight into how they affect
their victims. The median
duration for all of the fraud
cases in our study was 16
months. However, it stands
to reason that the longer a
fraud goes undetected, the
larger the scheme will grow.
Figure 7 shows that frauds
that last over 60 months are
more than 20 times as costly
as those that are caught in the
first six months. Our data also
indicates that fraudsters tend
to start small and increase
their frauds rapidly over
the first three years. Thus,
it is incredibly important for
organizations to implement
proactive fraud detection
mechanisms to catch frauds
quickly and minimize their
damage (see pg. 18).
$400,000
$425,000
$500,000
$715,000
CONCEALING FRAUD
An act of fraud typically involves not only the commission of the scheme itself, but also efforts
to conceal the misdeeds. Understanding the methods fraudsters use to cover their crimes can
help organizations better design prevention mechanisms and detect the warning signs of fraud.
TOP 8 CONCEALMENT METHODS USED BY FRAUDSTERS
55%
Created fraudulent
physical documents
14
48%
Altered physical
documents
42%
34%
31%
Created fraudulent Altered transactions Altered electronic
transactions in the
in the accounting documents or files
accounting system
system
How Occupational Fraud Is Committed Report to the Nations
30%
29%
Destroyed physical Created fraudulent
documents
electronic
documents or files
27%
Created fraudulent
journal entries
We also examined the duration
of the cases reported to us
based on the type of scheme
involved. Figure 8 shows the
result of this analysis. The
payroll schemes in our study
tended to last the longest,
with a median duration of 30
months, while schemes involving cash on hand and register
disbursements were both
typically uncovered one year
after they began.
FIG. 8 How long do different occupational fraud schemes last?
Payroll
30 months
Check and payment tampering
24 months
Financial statement fraud
24 months
Expense reimbursements
24 months
Billing
24 months
Cash larceny
24 months
Corruption
22 months
Skimming
18 months
Noncash
18 months
Cash on hand
12 months
Register disbursements
12 months
%
3
ONLY
OF CASES
DID NOT
involve
any attempts
to conceal
the fraud
All of these
unconcealed
cases were
committed
by owners/
executives
How to Conceal:
����
� �
���
Create, Alter, or Destroy?
80%
Created fraudulent
evidence
43%
Deleted or
destroyed evidence
what to Conceal:
physical or electronic evidence?
80%
Altered existing
evidence
21%
63%
12%
Manager-level
fraudsters are more
likely to alter evidence.
Owners/executives are
more likely to create
or delete evidence.
ELECTRONIC
EVIDENCE
BOTH
PHYSICAL
EVIDENCE
How Occupational Fraud Is Committed Report to the Nations
15
DETECTION
How are fraud schemes
initially detected?
Understanding the methods by
which occupational frauds are
detected is critical for both investigating schemes and implementing
effective prevention strategies. We
asked survey participants to tell us
how the frauds they investigated
were initially detected, which helps
us understand how organizations
are most likely to discover frauds
in the future. This data also shows
how organizations can take steps
to detect fraud proactively, rather
than passively.
Initial Detection of
Occupational Frauds
Figure 9 shows that the leading detection
methods are tips, internal audit, and management review. This finding is not surprising, as these have been the three most common means of detecting occupational fraud
in every edition of the report since 2010.
Collectively, these three detection methods
were cited in 68% of the cases in our current
study. Tips were by far the most common
means of detection at 40% of cases—more
than internal audit (15%) and management
review (13%) combined.
16
Detection Report to the Nations
Tip Sources
Since tips are the most common detection method,
it is important to understand where those tips come
from. Figure 10 shows that slightly more than half
of all tips (53%) were provided by employees of the
victim organizations. Meanwhile, nearly one-third
(32%) of the tips that led to fraud detection came
from people outside the organization: customers,
vendors, and competitors. Active cultivation of tips
and complaints, such as the promotion of fraud
hotlines, is often geared primarily toward employees,
but this data suggests organizations should also
consider promoting reporting mechanisms to outside
parties, especially customers and vendors. Additionally, 14% of tips came from an anonymous source,
demonstrating that a significant portion of those who
reported fraud did not want their identities known.
Whistleblowers often have a fear of being identified
or retaliated against, which is why it is important that
they be able to make reports anonymously where
such practice is legally permissible.
FIG. 9 How is occupational fraud initially detected?
FIG. 10 Who reports occupational fraud?
Tip
40%
Internal audit
15%
Management review
13%
Employee
53%
By accident
7%
Other
6%
Account reconciliation
Customer
21%
5%
Document examination
4%
External audit
Anonymous
14%
4%
Surveillance/monitoring
3%
Notified by law enforcement
Vendor
8%
2%
Other
5%
IT controls
1%
Competitor
3%
Confession
1%
Shareholder/owner
2%
Internal source
External source
Other
Detection Report to the Nations
17
Median Loss and Duration
by Detection Method
In addition to determining the most common methods of detection, we also analyzed the median loss
and duration of fraud schemes based on how they
were uncovered. Our results indicate that there is a
correlation between the way in which occupational
fraud schemes are detected and the severity of the
fraud. More importantly, the data points to steps organizations can take to detect fraud proactively and,
in doing so, mitigate losses.
Figure 11 portrays the median loss and median duration for all cases, based on the method by which they
were detected. We grouped each of these detection
methods into three categories: active, passive, or
potentially active or passive. Active detection methods
(shaded teal) involve a deliberate search for misconduct from someone within the organization or an internal control designed to detect fraud. Passive detection
methods (shaded black) refer to cases in which the
organization discovers the fraud by accident, confession, or unsolicited notification by another party. We
classified tips and external audit as potentially active or
passive detection methods because those mechanisms
might or might not involve proactive efforts specifically
to identify fraud, depending on the circumstances.
Our findings show that median duration and median
loss were relatively low in frauds that were detected
by active methods. Frauds detected passively tended
to last much longer and have larger median losses.
For instance, frauds detected actively by IT controls
tended to last five months and cause a median loss of
USD 39,000, compared to schemes detected passively through notification from law enforcement, which
tended to last two years and cause a median loss of
almost USD 1 million. The key takeaway from this data
is that organizations can reduce the impact of fraud
by pursuing internal controls and policies that actively
detect fraud, such as thorough management review,
account reconciliation, and surveillance/monitoring.
Organizations that do not actively seek out fraud are
likely to experience schemes that continue for much
longer and at a higher cost.
FIG. 11 How does detection method relate to fraud duration and loss?
Active detection method
25
Passive detection method
$150,000
$250,000 24 months
23 months
20
10
Su
Detection Report to the Nations
lic
e
n
po
es
No
tifi
ed
by
nf
Co
ide
ac
c
sio
nt
it
By
na
la
ud
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nt
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$50,000
$39,000 6 months
5 months
te
r
5
$935,000
24 months
$130,000 $126,000
18 months 18 months
$110,000
$108,000 14 months
$52,000 12 months
11 months
15
0
18
$186,000
24 months
Potentially active or passive detection method
Ex
MEDIAN MONTHS TO DETECTION
30
HOTLINES AND REPORTING MECHANISMS
The presence of a hotline or other reporting mechanism affects
how organizations detect fraud and the outcome of the case.
63
%
50%
at organizations
of victim
organizations
had hotlines
HOTLINES
LOREM IPSUM
DOLOR SIT
$100,000
with hotlines
than those without
Organizations without hotlines were
more than TWICE AS LIKELY to detect
fraud by accident or by external audit
42%
OF CASES
DETECTED
BY TIP
detected fraud by
tip more often
NO HOTLINES
Corruption is particularly likely
to be detected by tip
Corruption
Asset
Misappropriation
50%
38%
Email
26%
Financial
Statement Fraud
��� ��� ���
DETECTED
BY TIP
Telephone hotlines are most popular, but
whistleblowers use various reporting mechanisms
Telephone hotline
Organizations
with hotlines
30%
DETECTED
BY TIP
$200,000
Fraud losses were
SMALLER
46%
OF CASES
DETECTED
BY TIP
38%
DETECTED
BY TIP
NOT ALL TIPS COME
THROUGH HOTLINES
Web-based/
online form
23%
When a reporting mechanism is not
used, whistleblowers are most likely
to report to:
DIRECT SUPERVISOR 32%
EXECUTIVE 15%
Mailed letter/form
16%
Other
9%
Fax
1%
FRAUD INVESTIGATION TEAM 13%
COWORKER 12%
INTERNAL AUDIT 10%
Detection Report to the Nations
19
VICTIM ORGANIZATIONS
How are different kinds of organizations
affected by occupational fraud?
To better understand the victim organizations in our study, we asked
participants to provide information about
T Y P Ethe
O F Vorganizations’
I C T I M O R G A N I Z A T type,
I O N — size,
FREQUENCY AND MEDIAN LOSS
and industry, as well as the mechanisms that the organizations had in
place to prevent and detect fraud at the time the scheme occurred.
Level of Government Organization
Resources and operations vary greatly by
level of government, meaning that fraud can
affect these organizations differently. Consequently, we broke down the government
fraud cases in our study based on the level
of government agency involved. While there
was not a large variation in the percentage
of schemes that occurred at local, state/
provincial, and national levels, the frauds at
national-level agencies tended to be much
larger, causing a median loss approximately
twice as large as the losses experienced by
local and state/provincial governments (see
Figure 13).
20
Victim Organizations Report to the Nations
42%
PERCENT OF CASES
As shown in Figure 12, more than 70% of
the frauds in our study occurred at for-profit organizations, with 42% of the victim
organizations being private companies and
29% being public companies. The private
companies in our study suffered the greatest
median loss, at USD 164,000. Not-for-profit
organizations were the victim in only 9% of
frauds and had the smallest median loss of
USD 75,000; however, for many not-for-profit
entities, financial resources are extremely
limited and a loss of USD 75,000 can be
particularly devastating.
FIG. 12 What types of organizations are victimized by
occupational fraud?
29%
16%
9%
4%
Private
company
Public
company
Government
MEDIAN LOSS
Type of Organization
Not-for-profit
Other
$75,000
$117,000
$118,000
$120,000
$164,000
FIG. 13 What levels of government are victimized
by occupational fraud?
38+31+265F
National: 38%
($200,000*)
Local: 31%
($92,000*)
State/provincial: 26%
($110,000*)
Other: 4%
($58,000*)
*Dollar amounts are median loss.
Size of Organization
The size of an organization’s staff can directly affect both the opportunity for
fraud and the ability to enact certain anti-fraud mechanisms. Larger entities
typically have more resources to invest in their anti-fraud programs, as well as
a greater ability to separate duties among staff members to help prevent fraud;
however, the large staff size can also mean more potentially dishonest employees who might attempt schemes and more complex processes and transactions, which can increase the risk of fraud.
To provide some insight into the relative risks of fraud for organizations of
various sizes, we analyzed the cases reported to us based on the number of
employees at the victim organization. Figure 14 shows that small organizations (those with fewer than 100 employees) both experienced the greatest
percentage of cases in our study (28%) and suffered the largest median loss
(USD 200,000). See “Fraud in Small Businesses” on pgs. 22–23 for more
information about how fraud affects these organizations.
FIG. 14 How does an organization’s size relate to its occupational fraud risk?
28%
26%
24%
PERCENT OF CASES
22%
MEDIAN LOSS
<100
employees
100–999
employees
1,000–9,999
employees
$100,000
$100,000
10,000+
employees
$132,000
$200,000
21
FRAUD IN SMALL BUSINESSES
Fraud can be especially devastating to small businesses. These organizations typically have
fewer resources to both prevent and recover from a fraud, and they often require an increased
level of trust in employees due to a lower ability to implement robust anti-fraud controls.
SMALL BUSINESSES
LOSE ALMOST
TWICE AS MUCH
PER SCHEME TO
OCCUPATIONAL FRAUD
1
<
S
EMPLOYE
+
E
00
S
EMPLOYE
0
E
10
Median loss:
Median loss:
$200,000
Frauds caused by
lack of internal controls:
29%
42%
44%
25%
Frauds perpetrated by
an owner/executive:
29%
16%
Frauds detected by tip:
22
$104,000
Victim Organizations Report to the Nations
32%
Corruption
Billing
29%
18%
Check and
payment tampering
22%
8%
Expense
reimbursements
21%
11%
Skimming
DIFFERENT RISKS
20%
14%
than larger organizations
16%
Noncash
22%
16%
Financial
statement fraud
7%
Cash larceny
9%
Payroll
Register
disbursements
Small businesses face
20%
8%
Cash on hand
43%
14%
<100 Employees
100+ Employees
13%
5%
3%
2%
0%
10%
20%
30%
40%
PERCENT OF CASES
Small businesses
typically have
fewer
anti-fraud Controls
than larger organizations,
leaving them more
vulnerable to fraud
100%
80%
100+ Employees
60%
40%
<100 Employees
20%
0%
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Victim Organizations Report to the Nations
Ex
23
Industry of Organization
In addition, we examined the cases reported to us based on the industry of the victim organization. The greatest number of cases in our study occurred in the banking and financial services, manufacturing, and government and public
administration sectors. Readers should note that this data likely represents the industries that most often employ
CFEs, rather than the industries that are most susceptible to fraud. However, information about occupational fraud in
various industries can be useful for benchmarking purposes.
FIG. 15 How does occupational fraud affect organizations in different industries?
17+83+R
5+95+R
4+96+R
2+98+R
1+99+R
366
Cases
Banking and
financial services
M E D I A N LO S S :
$110,000
101
Cases
Insurance
M E D I A N LO S S :
$153,000
83
Cases
Transportation and
warehousing
M E D I A N LO S S :
$140,000
51
Cases
Arts, entertainment,
and recreation
M E D I A N LO S S :
$88,000
28
Cases
Services (Other)
M E D I A N LO S S :
$82,000
24
Victim Organizations Report to the Nations
10+90+R
4+96+R
4+96+R
2+98+R
1+99+R
212
7%
Cases
Manufacturing
M E D I A N LO S S :
$240,000
97
Cases
Education
M E D I A N LO S S :
$68,000
76
Cases
Food service and hospitality
M E D I A N LO S S :
$90,000
50
Cases
Telecommunications
M E D I A N LO S S :
$100,000
27
Cases
Mining
M E D I A N LO S S :
$208,000
9+91+R
4+96+R
3+97+R
2+98+R
1+99+R
201
14%
Cases
Government and
public administration
M E D I A N LO S S :
$125,000
94
Cases
Energy
M E D I A N LO S S :
$300,000
68
Cases
Technology
M E D I A N LO S S :
$150,000
35
Cases
Real estate
M E D I A N LO S S :
$180,000
24
Cases
Communications and
publishing
M E D I A N LO S S :
$525,000
7+93+R 5+95+R
4+96+R 4+96+R
3+97+R 3+97+R
1+99+R 1+99+R
1+99+R
108
158
Cases
Cases
Retail
Health care
M E D I A N LO S S :
$100,000
M E D I A N LO S S :
$50,000
90
84
Cases
Construction
M E D I A N LO S S :
$227,000
Cases
Other
M E D I A N LO S S :
$70,000
58
60
Cases
Cases
Religious, charitable,
or social services
Services (professional)
$90,000
$258,000
M E D I A N LO S S :
M E D I A N LO S S :
32
29
Cases
Agriculture, forestry,
fishing, and hunting
M E D I A N LO S S :
$136,000
24
Cases
Wholesale trade
M E D I A N LO S S :
$110,000
Cases
Utilities
M E D I A N LO S S :
$150,000
Most Common Schemes by Industry
Understanding the frequency of specific fraud schemes within different industries can help organizations assess
and design controls to guard against the schemes that pose the most significant threats. Figure 16 provides a heat
map showing the relevant risk for each category of occupational fraud in every industry that had at least 50 reported cases in our study. Boxes are shaded from light to dark red based on the respective level of occurrence, with
darker boxes indicating higher-frequency schemes.
Cases
Billing
Cash larceny
Cash on hand
Check and payment
tampering
Corruption
Expense reimbursements
Financial statement fraud
Noncash
Payroll
Register disbursements
Skimming
FIG. 16 What are the most common occupational fraud schemes in various industries?
Banking and financial
services
338
11%
14%
23%
12%
36%
7%
8%
11%
2%
3%
9%
Manufacturing
201
27%
8%
15%
12%
51%
18%
10%
28%
5%
3%
7%
Government and public
administration
184
15%
11%
11%
9%
50%
11%
5%
22%
7%
2%
11%
Health care
149
26%
7%
13%
13%
36%
16%
11%
19%
17%
1%
12%
Retail
104
20%
10%
19%
9%
28%
8%
12%
34%
5%
13%
13%
Education
96
23%
19%
19%
6%
38%
18%
6%
19%
6%
0%
14%
Insurance
87
20%
9%
3%
18%
45%
8%
7%
11%
3%
1%
11%
Energy
86
20%
2%
10%
12%
53%
10%
3%
27%
7%
2%
10%
Construction
83
37%
12%
8%
19%
42%
23%
16%
23%
14%
1%
13%
Transportation and
warehousing
79
25%
8%
8%
9%
46%
15%
8%
28%
3%
3%
13%
Food service and
hospitality
75
17%
16%
20%
11%
29%
12%
12%
24%
7%
0%
23%
Technology
62
26%
5%
10%
8%
42%
21%
16%
32%
8%
0%
6%
Religious, charitable, or
social services
58
40%
9%
22%
19%
34%
29%
10%
19%
22%
3%
17%
Services (professional)
54
26%
17%
15%
26%
17%
30%
13%
13%
15%
0%
15%
Arts, entertainment,
and recreation
50
14%
20%
36%
6%
32%
12%
8%
18%
4%
8%
28%
INDUSTRY
LESS RISK
MORE RISK
Victim Organizations Report to the Nations
25
As noted in Figure 16 on pg. 25, corruption poses
a significant risk to several industries, with the most
common occurrence of corruption schemes in the
energy, manufacturing, and government and public
administration sectors. Skimming schemes were also
notably more common in the arts, entertainment, and
recreation and the food service and hospitality industries than elsewhere, while payroll schemes occurred
more frequently in the religious, charitable, or social
services and the health care sectors. Interestingly, the
cases that occurred in religious, charitable, or social
services organizations also tended to involve the most
crossover between scheme types, meaning the perpetrators in these cases used many different schemes to
defraud the victims, rather than limiting their frauds to
one specific area.
Anti-Fraud Controls
at the Victim Organization
The presence of a robust system of anti-fraud controls can be a powerful deterrent, as well as a proactive prevention and detection mechanism, in the fight
against fraud. Thus, organizations can benefit from
knowing which anti-fraud controls are commonly
used by their peers, as well as which tend to be the
most effective. To help explore this information, we
provided survey respondents with a list of 18 entity-level, anti-fraud controls and asked which, if any,
were present at the victim organization at the time
the fraud occurred. As noted in Figure 17, 80% of the
organizations had a code of conduct and underwent
external financial statement audits, while 73% had
internal audit departments, and 72% had company
management certify the financial statements. On the
other end of the spectrum, 19% of organizations had
policies requiring job rotation or mandatory vacation,
and only 12% provided rewards for whistleblowers.
26
Victim Organizations Report to the Nations
Effectiveness of Anti-Fraud Controls
Demonstrating the return on investment in anti-fraud
initiatives can be a difficult task, as it is nearly impossible to measure the amount of fraud prevented by a
specific control. However, many anti-fraud professionals find themselves needing to make a business case
to justify additional fraud prevention and detection
initiatives. To provide some visibility into the relative effectiveness of various anti-fraud controls, we compared
the losses experienced by the victim organizations that
had specific controls in place against the losses experienced by those that had not implemented each control.
The results of this analysis are provided in Figure 18
on pg. 28. Interestingly, the presence of every control
we analyzed was correlated with lower fraud losses.
For example, the use of proactive data monitoring and
analysis and surprise audits was associated with a
more than 50% reduction in fraud losses.
We similarly analyzed the duration of fraud schemes
based on the presence or absence of each anti-fraud
control (see Figure 19 on pg. 29). Data monitoring and
analysis and surprise audits were correlated with the
most significant reductions in fraud duration; as these
two controls were also associated with some of the
largest loss reductions, our data indicates that they are
among the most useful tools in the fight against fraud.
FIG. 17 What anti-fraud controls are most common?
Code of conduct
80%
External audit of financial statements
80%
Internal audit department
73%
Management certification of financial statements
72%
External audit of internal controls over financial reporting
67%
Management review
66%
Hotline
63%
Independent audit committee
61%
Employee support programs
54%
Anti-fraud policy
54%
Fraud training for employees
53%
Fraud training for managers/executives
52%
Dedicated fraud department, function, or team
41%
Formal fraud risk assessments
41%
Surprise audits
37%
Proactive data monitoring/analysis
37%
Job rotation/mandatory vacation
19%
Rewards for whistleblowers
12%
Victim Organizations Report to the Nations
27
FIG. 18 How does the presence of anti-fraud controls relate to median loss?
$250,000
PERCENT
REDUCTION
$200,000
$150,000
12%
20% 23%
29%
33%
35%
38%
38% 41%
43%
46% 47%
50% 50%
50% 51%
52%
56%
Median loss without controls
$100,000
Median loss with controls
$50,000
g
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ep
en
d
ar
w
Re
Ind
0
sf
Percent
of cases
Control
in place
Control not
in place
Percent
reduction
Code of conduct
80%
Proactive data monitoring/analysis
37%
$110,000
$250,000
56%
$80,000
$165,000
Surprise audits
52%
37%
$75,000
$152,000
51%
External audit of internal controls over financial reporting
67%
$100,000
$200,000
50%
Management review
66%
$100,000
$200,000
50%
Hotline
63%
$100,000
$200,000
50%
Anti-fraud policy
54%
$100,000
$190,000
47%
Internal audit department
73%
$108,000
$200,000
46%
Management certification of financial statements
72%
$109,000
$192,000
43%
Fraud training for employees
53%
$100,000
$169,000
41%
Formal fraud risk assessments
41%
$100,000
$162,000
38%
Employee support programs
54%
$100,000
$160,000
38%
Fraud training for managers/executives
52%
$100,000
$153,000
35%
Dedicated fraud department, function, or team
41%
$100,000
$150,000
33%
External audit of financial statements
80%
$120,000
$170,000
29%
Job rotation/mandatory vacation
19%
$100,000
$130,000
23%
Independent audit committee
61%
$120,000
$150,000
20%
Rewards for whistleblowers
12%
$110,000
$125,000
12%
Control
28
Victim Organizations Report to the Nations
FIG. 19 How does the presence of anti-fraud controls relate to the duration of fraud?
25
MEDIAN MONTHS TO DETECTION
20
33%
38% 40%
44%
46%
48%
50%
50% 50%
50%
50% 50%
50% 50%
50% 50%
54%
58%
PERCENT
REDUCTION
15
Median duration without controls
Median duration with controls
10
es
ye
la
plo
a
rn
te
Ex
Em
0
sis
aly
/an
ing
or
ts
n
g
nit
tin
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mo
or
te
ta
ta
ep
da
ls
lr
cia
ve
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cti
an
nt
an
s
n
t
e
i
oa
fin
f fi
tm
ud
Pr
r
o
er
a
ea
ov
ep
ion
t
ris
ls
it d fica
rp
tro
ud
Su
rti
on
la
lc
ce
na
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nt
er
er
me
Int
nt
i
ge
of
na
dit
Ma
w
au
al
vie
rn
re
te
nt
Ex
me
ge
na
s
Ma
s
ive
ee
e
cy
ut
loy
tlin poli
ec
ex
mp
Ho
ud
rs/
re
e
fo
fra
ag s
ting
an
t
An
ini
en
rm
ra
fo
sm
dt
es
ng
au
ss
Fr
ini
s
ra
er
ka
w
ris
dt
blo
au aud
Fr
ee
tle
fr
itt
his
al
mm
rm
rw
fo
co
Fo
s
am
dit
rd
te
n
au
or
wa
tio
nt
n,
Re
ca
de
tio
va
en
ct
nc
y
r
fu
ep
du
o
,
t
t
Ind f con
da
s
en
nt
o
an
tm
r
m
me
de
n/
pa
te
Co atio
de
sta
ot
ud
ial
br
fra
nc
Jo
ed
na
at
ms
f fi
ra
dic
it o
og
De
ud
pr
rt
5
po
up
Percent
of cases
Control
in place
Control not
in place
Percent
reduction
Proactive data monitoring/analysis
37%
10 months
24 months
58%
Surprise audits
37%
11 months
24 months
54%
Internal audit department
73%
12 months
24 months
50%
Management certification of financial statements
72%
12 months
24 months
50%
External audit of internal controls over financial reporting
67%
12 months
24 months
50%
Management review
66%
12 months
24 months
50%
Hotline
63%
12 months
24 months
50%
Anti-fraud policy
54%
12 months
24 months
50%
Fraud training for employees
53%
12 months
24 months
50%
Fraud training for managers/executives
52%
12 months
24 months
50%
Formal fraud risk assessments
41%
12 months
24 months
50%
Rewards for whistleblowers
12%
9 months
18 months
50%
Independent audit committee
61%
12 months
23 months
48%
Code of conduct
80%
13 months
24 months
46%
Job rotation/mandatory vacation
19%
10 months
18 months
44%
Dedicated fraud department, function, or team
41%
12 months
20 months
40%
External audit of financial statements
80%
15 months
24 months
38%
Employee support programs
54%
12 months
18 months
33%
Control
Victim Organizations Report to the Nations
29
Background Checks
Effectively preventing fraud
begins with ensuring that
the organization hires ethical
employees. As part of our
study, we examined whether
the victim organizations ran
a background check on the
perpetrator prior to hiring him
or her, as well as whether the
background check revealed
any potential indicators of the
employee’s dishonesty. As
noted in Figure 20, 52% of the
organizations ran background
checks, while 48% did not.
Of the organizations that did
run a check before hiring the
perpetrator, 10% were alerted
to a red flag regarding the
perpetrator but chose to hire
the person anyway.
We also asked about the
types of background checks
used by the victim organizations in our study. Figure 21
shows that these organizations were most likely to look
into the individual’s employment and criminal history, with
three-quarters or more of the
background checks covering
these areas.
30
Victim Organizations Report to the Nations
FIG. 20 Was a background check run on the perpetrator prior to hiring?
Did the check reveal
existing red flags?
No 48%
Yes 52%
FIG. 21 What types of background checks were run
on the perpetrator prior to hiring?
Employment history 78%
Criminal checks 75%
Reference checks 55%
Education verification 50%
Credit checks 36%
Other
4%
Yes
10%
No
90%
Internal Control Weaknesses that Contributed to Fraud
Understanding the factors that can lead to fraud is the foundation of preventing future occurrences. Consequently, we asked survey respondents what they perceived to be the primary internal control weakness that
contributed to the fraud they reported. In 30% of cases, a simple lack of controls was the main factor that
enabled the fraud to occur, while another 19% of cases occurred because the perpetrator was able to override
the controls that had been put in place.
FIG. 22 What are the primary internal control weaknesses that contribute to occupational fraud?
Lack of internal controls 30%
Override of existing controls 19%
Lack of management review 18%
Poor tone at the top 10%
Lack of independent checks/audits
4%
Lack of employee fraud education
2%
Lack of clear lines of authority
2%
Lack of reporting mechanism
<1 %
Lack of competent personnel in oversight roles 8%
Other 6%
Victim Organizations Report to the Nations
31
We also analyzed these
control weaknesses based
on the category of fraud
involved in the scheme (see
Figure 23). Not surprisingly,
a poor tone at the top was
much more likely to be the
primary factor in financial
statement fraud and corruption cases than in asset
misappropriation cases.
However, it is interesting to
note that a lack of internal
controls is more common in
asset misappropriation and
financial statement frauds,
while corruption schemes
are more likely than other
schemes to involve an
override of existing controls. In addition, a lack
of management review is
more commonly the reason
for asset misappropriation
schemes than other forms
of fraud.
FIG. 23 How do internal control weaknesses vary by scheme type?
Lack of internal controls
32%
25%
29%
Lack of management review
19%
15%
15%
Override of existing internal controls
18%
21%
14%
Poor tone at the top
9%
18%
23%
Lack of competent personnel in oversight roles
8%
6%
5%
Other
5%
7%
8%
Lack of independent checks/audits
4%
3%
5%
Lack of employee fraud education
2%
3%
<1%
Lack of clear lines of authority
2%
2%
0%
Lack of reporting mechanism
<1%
1%
1%
Asset misappropriation
32
Victim Organizations Report to the Nations
Corruption
Financial statement fraud
PERPETRATORS
What does a typical fraudster look like?
We asked survey respondents to provide a broad range of information about
the fraud perpetrators they investigated, including the offenders’ conditions
of employment, basic demographics, prior misconduct, and behavior that
might have been warning signs of fraudulent activity. Our goal is to identify
common characteristics and risk profiles for those who commit occupational
fraud, which can help organizations better recognize fraud perpetrators or
those at risk for engaging in fraudulent activity.
44%
34%
PERCENT OF CASES
As seen in Figure 24, there is
a strong correlation between
the fraud perpetrator’s level of
authority and the size of the
fraud. While owners/executives only committed 19% of the
frauds in our study, the schemes
committed by these individuals
resulted in a median loss of USD
850,000, which was nearly six
times larger than the median
loss caused by managers, and 17
times larger than the median loss
caused by low-level employees.
A significant correlation between
authority and fraud loss has
been found in every edition of
the report dating back to 1996.
This correlation likely reflects
the fact that high-level fraudsters
tend to have greater access to
an organization’s assets than
low-level personnel. They may
also have greater technical
ability to commit and conceal
fraud, and they might be able to
use their authority to override or
conceal their crimes in ways that
low-level employees cannot.
FIG. 24 How does the perpetrator’s level of authority
relate to occupational fraud?
19%
3%
Employee
Manager
Owner/executive
Other
$50,000
$150,000
$189,000
MEDIAN LOSS
Perpetrator’s Position
$850,000
Perpetrators Report to the Nations
33
One reason frauds committed by high-level perpetrators are more costly could be that their schemes
tend to last longer. The median duration of a scheme
committed by an owner/executive was 24 months,
compared to 18 months for schemes committed by
managers and 12 months for those committed by
employees (See Figure 7 on pg. 14 for more information on the correlation between fraud duration and
median loss.).
FIG. 25 How does the perpetrator’s level of
authority relate to scheme duration?
Position
Median months to detection
Employee
12 months
Manager
18 months
Owner/executive
24 months
Perpetrator’s Tenure
As Figure 26 shows, fraud losses tend to increase
based on how long the fraud perpetrator worked
for the victim organization. Perpetrators with
less than one year of tenure caused a median
loss of USD 40,000, while those with more than
ten years’ experience at the victim organization
caused a median loss of USD 241,000, more than
six times as high.
FRAUD COMMITTED BY OWNERS AND EXECUTIVES
Occupational frauds committed by owners/executives tend to be extremely
costly. How do these cases differ from non-owner/executive frauds?
MEDIAN LOSS
$850,000
OWNERS/EXECUTIVES
65%
of owner/executive
frauds involved
corruption
27%
of owner/executive
frauds involved financial
statement fraud
34%
$100,000
NON-OWNERS/
EXECUTIVES
34
Perpetrators Report to the Nations
Non-ownerS/executives
6%
Non-ownerS/executives
Corruption and financial statement fraud are the
two costliest forms of occupational fraud
FIG. 26 How does the perpetrator’s tenure relate to occupational fraud?
Less than 1 year
9%
$40,000
1–5 years
44%
$100,000
6–10 years
23%
$173,000
More than
10 years
24%
$241,000
PERCENT OF CASES
MEDIAN LOSS
Owners/executives
engaged in non-fraud-related
misconduct more often
Owners/executives
Collusion schemes tend to be more
costly than single-perpetrator frauds
owners/executives
of cases involved
collusion
non-owners/executives
45%
of cases involved
collusion
62%
owners/executives
of cases involved nonfraud-related misconduct
non-owners/executives
���
66+45
66%
62+41
are more likely to collude
with others
41%
of cases involved nonfraud-related misconduct
bullying or intimidation
was most common, observed in
41% of owner/executive cases
Frauds detected by a third-party
auditor or law enforcement:
Owner/executive
Non-owner/executive
1 in 8
1 in 25
Frauds that are not detected internally tend to be much more costly
Perpetrators Report to the Nations
35
One possible explanation for the correlation between tenure and fraud loss might be that employees who have been with an organization for long
periods of time are often promoted to positions of
greater authority. As seen in Figure 24 on pg. 33,
there is a strong correlation between authority and
fraud loss.
estingly, at every level, the more tenured fraudsters
To test this explanation, we separated all fraud
offenders into two groups: those who had been with
their organizations five years or fewer, and those
who had been with their organizations six years or
more. We then compared the median loss for these
two groups across similar levels of authority. Inter-
understanding of the organization’s controls and
caused significantly larger losses than their less
tenured counterparts. This indicates that the correlation between tenure and fraud loss to some extent
operates independently from the offender’s level of
authority. We believe it is likely that those with longer
tenure at a victim organization tend to have a better
processes—including gaps or weaknesses in those
processes—which may enable them to do a better
job of committing and concealing fraud. In a sense,
these perpetrators are learning from experience how
to steal from their employers.
FIG. 27 How does the perpetrator’s tenure relate to median loss at different levels of authority?
Employee
6 years or more
$100,000
$35,000
5 years or less
Manager
$200,000
$125,000
Owner/executive
$1,000,000
$672,000
MEDIAN LOSS
Perpetrator’s Department
Figure 28 shows the frequency and median loss in
fraud cases based on where the fraudster worked
within the victim organization. This heat map provides
a visual representation of the relative fraud risks posed
by various departments. For example, we can see that
accounting and operations were each responsible for
36
Perpetrators Report to the Nations
14% of the frauds in our study, but the median loss
caused by those in the accounting department (USD
212,000) was significantly larger than the median loss
from operations (USD 88,000). Frauds committed by
those in executive or upper-management roles were
slightly less common, but much costlier.
FIG. 28 What departments pose the greatest risk for occupational fraud?
Executive/upper management
$729,000
11%
$250,000
Information technology
Manufacturing
$200,000 and production
Accounting
Warehousing/inventory
Facilities and maintenance
Purchasing
Finance
$150,000
$100,000
Administrative support
Marketing/public relations
Human resources
Sales
Other
Operations
$50,000
Customer service
$0 0%
2%
4%
6%
8%
10%
LESS RISK
Department*
12%
14%
16%
MORE RISK
Percent of cases Median loss
Accounting
14%
$212,000
Operations
14%
$88,000
Sales
12%
$90,000
Executive/upper management
11%
$729,000
Customer service
8%
$26,000
Administrative support
8%
$91,000
Other
6%
$77,000
Finance
6%
$156,000
Purchasing
5%
$163,000
Facilities and maintenance
3%
$175,000
Warehousing/inventory
3%
$200,000
Information technology
3%
$225,000
Marketing/public relations
2%
$80,000
Manufacturing and production
2%
$200,000
Human resources
1%
$76,000
*Departments with fewer than ten cases were omitted.
Perpetrators Report to the Nations
37
Schemes Based on Perpetrator’s Department
Overall, 77% of the occupational frauds in our study came from eight departments: accounting, operations,
sales, executive/upper management, customer service, administrative support, finance, and purchasing. Figure
29 shows the relative frequency of various fraud schemes in each of those departments. Boxes are shaded
from light to dark red based on the frequency for each particular scheme, with darker boxes indicating higher
levels of risk. This data should be useful for organizations to assess risk and develop effective anti-fraud
controls in the departments most likely to be occupational fraud hotspots.
Cases
Billing
Cash larceny
Cash on hand
Check and payment
tampering
Corruption
Expense reimbursements
Financial statement fraud
Noncash
Payroll
Register disbursements
Skimming
FIG. 29 What are the most common occupational fraud schemes in high-risk departments?
Accounting
290
29%
14%
17%
30%
23%
12%
13%
7%
14%
2%
19%
Operations
266
15%
8%
15%
8%
36%
11%
4%
20%
5%
2%
11%
Executive/upper
management
223
35%
14%
16%
15%
62%
29%
30%
20%
12%
3%
9%
Sales
216
10%
12%
12%
6%
34%
13%
6%
25%
2%
5%
14%
Customer service
155
5%
16%
31%
8%
19%
4%
1%
15%
3%
5%
14%
Administrative support
147
33%
7%
21%
14%
26%
22%
8%
19%
13%
3%
14%
Finance
110
17%
15%
21%
16%
37%
13%
16%
15%
6%
2%
10%
Purchasing
94
18%
5%
6%
5%
77%
10%
3%
31%
3%
2%
4%
INDUSTRY
LESS RISK
38
Perpetrators Report to the Nations
MORE RISK
Perpetrator’s Gender
FIG. 30 How does the perpetrator’s
gender relate to occupational fraud?
Figure 30 shows that a sizeable majority
of the fraudsters in our study (69%) were
males. Men also caused much larger median losses (USD 156,000) than females (USD
89,000). This is consistent with our past
studies, which have all shown males to be
responsible for between 65% and 70% of
frauds along with a significant disparity in
fraud loss.
PERCENT OF CASES
69%
Perpetrator’s Gender Based on Region
31%
The gender distribution of occupational
fraudsters varies significantly by region.
As seen in Figure 31, in the United States
men accounted for 58% of all occupational
frauds, whereas in the Middle East and
North Africa this figure was 92%.
Female
MEDIAN LOSS
Male
$89,000
FIG. 31 How does the gender distribution of
perpetrators vary by region?
$156,000
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Western Europe
23%
31%
16%
77%
��
�
69%
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Canada
84%
8%
42%
58%
United States
Eastern Europe and
Western/Central Asia
12%
92%
Southern Asia
Middle East
and North Africa
88%
27%
24%
21%
Asia-Pacific
73%
76%
79%
Sub-Saharan Africa
Latin American
and the Caribbean
Male
Female
Perpetrators Report to the Nations
39
Figure 32 shows that the proportion of male fraudsters rises
with the perpetrators’ level of
authority. At the employee level,
only 58% of fraudsters were
male, but that number increased
to 73% for managers and 86%
for owners/executives. Given
that there were far more men
than women in higher levels
of authority in our dataset, we
would expect the median loss
for males to be larger.
But interestingly, even when
we account for authority
level, males still tend to cause
significantly larger losses than
females in managerial and
owner/executive roles. Male
owners/executives caused a
median loss of USD 1 million,
as opposed to a median loss
of USD 295,000 caused by
female owners/executives.
Among managers there was
also a gender discrepancy in
median loss, although not nearly
as large. At the employee level,
male and female median losses
were equal.
40
Perpetrators Report to the Nations
86%
73%
PERCENT OF CASES
One possible reason that fraud
losses caused by men are larger
than those caused by women
could be related to levels of
authority. As shown in Figure 24
on pg. 33, fraudsters with high
levels of authority (e.g., executives and owners) tend to cause
much larger losses than those
with low authority (e.g., rankand-file employees).
FIG. 32 How does gender distribution and median loss vary based on
the perpetrator’s level of authority?
58%
42%
27%
14%
Employee
Manager
$50,000 $50,000
$165,000
Owner/executive
$128,000
MEDIAN LOSS
Position of Perpetrator
Based on Gender
$295,000
Male
Female
$1,000,000
The age distribution of
occupational fraudsters
is roughly bell-shaped, as
seen in Figure 33. Losses,
however, tend to rise with
the age of the fraudster.
The largest median losses
in our study were caused
by fraudsters in the oldest
age ranges (56 and older),
while those who were 30
or younger caused a much
smaller amount of damage.
FIG. 33 How does the perpetrator’s age relate to occupational fraud?
19%
19%
15%
PERCENT OF CASES
Perpetrator’s Age
14%
10%
9%
6%
5%
3%
<26
$23,000
26–30
31–35
36–40
41–45
46–50
51–55
56–60
>60
$40,000
MEDIAN LOSS
$100,000 $100,000
$200,000
$250,000 $237,000
$355,000
$480,000
This data might indicate that highly educated fraudsters
have superior technical abilities or knowledge that make
them more effective at committing fraud, but it is also
probably influenced by the fraudster’s position of authority. More highly educated individuals tend to occupy
higher positions within an organization. For example, in
our study approximately 68% of those with a university
or postgraduate degree were either managers or owners/executives.
47%
PERCENT OF CASES
Figure 34 shows there is also a correlation between the
fraudster’s education level and the size of the fraud.
Those with a postgraduate degree caused a median
loss of USD 230,000 and those with a university degree
caused a median loss of USD 160,000. Both of these figures were much higher than the median loss of schemes
by fraudsters with a high school degree or less.
FIG. 34 How does the perpetrator’s education
level relate to occupational fraud?
24%
15%
High school
Some
graduate or less university
MEDIAN LOSS
Perpetrator’s Education Level
14%
University Postgraduate
degree
degree
$75,000
$130,000
$160,000
$230,000
Perpetrators Report to the Nations
41
Collusion by Multiple
Perpetrators
Approximately half of the cases
in our study involved multiple
perpetrators who colluded with
one another to commit fraud. As
Figure 35 illustrates, fraud losses
rose significantly when more
than one fraudster was involved
in a scheme. One likely explanation for this finding is that many
anti-fraud controls work on the
principles of separation of duties
and independent checks. When
multiple perpetrators conspire in
a fraud scheme, they can circumvent the system of independent
verification that might otherwise
detect fraud.
Perpetrator’s
Criminal Background
The vast majority of occupational
fraudsters have no prior history
of criminal fraud convictions.
Only 4% of the perpetrators in
our 2018 study had previously
been convicted of a fraud-related
offense, which is consistent with
our findings in every study dating
back to 1996. This suggests that
most occupational fraudsters are
first-time offenders. However, according to Figure 43 on pg. 49,
between 58% and 69% of occupational fraud cases in our past
studies were never referred to
law enforcement, which indicates
that the actual number of repeat
offenders is probably higher than
what can be identified through
conviction records.
42
Perpetrators Report to the Nations
FIG. 35 How does the number of perpetrators in a scheme relate to
occupational fraud?
���
���
���
52%
of cases
19%
of cases
30%
of cases
ONE
PERPETRATOR
$74,000 Median
loss
TWO
PERPETRATORS
$150,000 Median
loss
THREE OR MORE
PERPETRATORS
$339,000 Median
loss
FIG. 36 Do perpetrators tend to have prior fraud convictions?
Never charged or convicted (89%)
Charged but not convicted (6%)
Had prior convictions (4%)
Other (1%)
Perpetrator’s Employment History
Figure 37 shows that 85% of occupational fraud
perpetrators had never been punished or terminated for fraud-related conduct prior to the crimes
in this study. This also tends to indicate that most
occupational fraudsters are first-time offenders,
but as with criminal conviction data discussed
earlier, this data might understate the real number
of repeat offenders. According to Figure 41 on pg.
47, 28% of fraudsters in our study either received
no punishment from their employers, were permitted to resign, or entered into private settlement
agreements (which are typically confidential).
Therefore, the true number of repeat offenders
may be higher than what is indicated by employment background checks.
FIG. 37 Do perpetrators tend to have prior
employment-related disciplinary actions for fraud?
Behavioral Red Flags
Displayed by Perpetrators
Individuals who are engaged in occupational fraud schemes often exhibit
certain behavioral traits or warning
signs associated with their illegal activity. We presented survey respondents
with a list of 17 common behavioral red
flags and asked them to tell us which,
if any, of these red flags had been
displayed by the perpetrator before the
fraud was discovered.
Figure 38 on pg. 45 shows the frequency of behavioral red flags in our
2018 cases. The six most common
behavioral indicators of occupational
fraud were: (1) living beyond means; (2)
financial difficulties; (3) unusually close
association with a vendor or customer;
(4) excessive control issues or unwillingness to share duties; (5) recent
divorce or family problems; and (6) a
general “wheeler-dealer” attitude involving shrewd or unscrupulous behavior. These six red flags have been the
six most common behavioral indicators
in every report since we began tracking
this data in 2008. (See “The Red Flags
of Fraud” on pg. 44.)
Never punished or terminated (85%)
Previously terminated (9%)
Previously punished (6%)
Other (1%)
Perpetrators Report to the Nations
43
THE RED FLAGS OF FRAUD
Understanding and recognizing the behavioral red flags displayed by fraud perpetrators
can help organizations detect fraud and mitigate losses.
IN
85%
OF CASES
50%
OF CASES
fraudsters displayed at least
one behavioral red flag
Living beyond
means
AND IN
Financial
difficulties
they exhibited
multiple red flags
Unusually close
association with
vendor/customer
These
behavioral
red flags
2018
Control issues,
unwillingness
to share duties
have been the most common in
every one of our studies dating
back to 2008, with a remarkably
consistent distribution
2016
2014
2012
Divorce/
family problems
2010
2008
“Wheeler-dealer”
attitude
0%
OWNER/
EXECUTIVE
44
10%
30%
40%
Red flags varied by
Red flags varied by
PERPETRATOR’S POSITION
20%
PERPETRATOR’S GENDER
EMPLOYEE
24%
Unusually close association with
vendor/customer
16%
24%
Financial difficulties
39%
21%
Control issues, unwillingness to
share duties
8%
11%
Divorce/family problems
20%
22%
“Wheeler-dealer” attitude
9%
2%
Instability in life circumstances
18%
Irritability, suspiciousness, or
defensiveness
10%
24%
Unusually close association with
vendor/customer
11%
6%
23%
Financial difficulties
35%
16%
“Wheeler-dealer” attitude
6%
4%
Complained about inadequate pay
11%
8%
Excessive pressure from within
the organization
3%
Perpetrators Report to the Nations
FIG. 38 How often do perpetrators exhibit behavioral red flags?
Living beyond means
41%
Financial difficulties
29%
Unusually close association with vendor/customer
No behavioral red flags
20%
15%
Control issues, unwillingness to share duties
15%
Divorce/family problems
14%
“Wheeler-dealer” attitude
13%
Irritability, suspiciousness, or defensiveness
12%
Addiction problems
10%
Complained about inadequate pay
9%
Excessive pressure from within organization
7%
Social isolation
7%
Past legal problems
6%
Refusal to take vacations
Past employment-related problems
6%
6%
Complained about lack of authority
5%
Excessive family/peer pressure for success
Other
4%
4%
Instability in life circumstances
3%
45
Non-Fraud-Related
Misconduct by Perpetrators
Human Resources-Related Red Flags
We presented survey respondents with a list of common non-fraud workplace violations and asked them
to identify any that the fraudster had been engaged
in prior to or during the time of the fraud. As Figure
39 shows, 45% of fraud offenders had committed
some form of non-fraud workplace violation, which
could potentially indicate a link between occupational
fraud and other forms of workplace misconduct. The
most common non-fraud violation was bullying or
intimidation, which was observed in 21% of all cases.
In some circumstances, negative events surrounding
a person’s conditions of employment (such as poor
performance evaluations, loss of pay or benefits, fear
of job loss, etc.) can cause financial stress or resentment toward the employer, which might play a role
in the decision to commit fraud. We refer to these
events as “human resources-related red flags.” As
Figure 40 shows, 39% of fraudsters had experienced
some form of HR-related red flags prior to or during
the time of their frauds. The most common of these
were negative performance evaluations (14% of cases) and fear of job loss (13%).
FIG. 39 Do fraud perpetrators also
engage in non-fraud-related misconduct?
FIG. 40 Do fraud perpetrators experience negative
HR-related issues prior to or during their frauds?
Yes
45%
Bullying or intimidation (21%)
Excessive absenteeism (14%)
No
55%
Yes
39%
Poor performance evaluations (14%)
Fear of job loss (13%)
Actual job loss (5%)
Excessive tardiness (10%)
Cut in benefits (4%)
Excessive Internet browsing (7%)
Other (4%)
Sexual harassment (4%)
46
Cut in pay (3%)
Visiting inappropriate websites (4%)
Demotion (3%)
Other (4%)
Involuntary cut in hours (3%)
Perpetrators Report to the Nations
No
61%
CASE RESULTS
How do organizations react after a fraud has been
discovered?
We asked our respondents about what happened after the fraud was determined to have occurred. This data is valuable for developing expectations
about the remedies that are available to organizations, as well as evaluating
the common punitive actions taken against fraud perpetrators. The common
theme in this data is that while it is often worthwhile to pursue remedial action against perpetrators, victims will usually not be made whole.
Internal Action
Taken Against
Perpetrator
Survey respondents provided information about
how perpetrators were
internally punished or
dealt with. Not surprisingly,
termination was the most
common disciplinary action taken in occupational
fraud cases (65%). It is
noteworthy that over onethird of perpetrators were
not terminated as a direct
result of committing fraud.
In some cases the victim
organization imposed
lighter punishments such
as permitting the offender
to resign (10% of cases)
or placing him or her on
probation (8% of cases),
while in 6% of cases the
fraudster received no
punishment at all.
FIG. 41 How do victim organizations punish fraud perpetrators?
Termination
65%
Settlement agreement
12%
Perpetrator was no longer with organization
11%
Permitted or required resignation
10%
Probation or suspension
8%
No punishment
6%
Other
4%
47
From the perspective
of ethics and fairness, there might be
no reason to treat a
high-level fraud perpetrator more leniently
than an entry-level
employee. However,
our data shows that
punishment is substantially dependent on the
perpetrator’s position
at the organization.
While employees and
mid-level managers
are more likely than
not to be terminated
(72% and 67%, respectively), fewer than half
of owners/executives
were terminated (44%).
Generally, the higher up
the perpetrators were
at the organization, the
more likely they were to
receive lighter punishments (e.g., permitted or
required resignation) or
no punishment at all.
FIG. 42 Does the perpetrator’s position affect the punishment for fraud?
Termination
44%
67%
72%
Settlement agreement
18%
12%
10%
Perpetrator was no longer with organization
15%
12%
10%
Permitted or required resignation
16%
11%
8%
Probation or suspension
7%
8%
8%
No punishment
12%
5%
3%
Owner/executive
Manager
Employee
Criminal Prosecutions and Civil Suits
After a fraud has been discovered and investigated,
the case might proceed to prosecution, civil litigation, both, or neither. There are many factors that can
affect this result, such as the amount of the financial
loss, the strength of evidence, and prosecutorial
discretion. Figure 43 shows the percent of cases
that were referred to law enforcement or resulted in
48
Case Results Report to the Nations
a civil suit being filed for each of our studies dating
back to 2008. This chart illustrates that the rate of
criminal referrals has gradually decreased over that
time, from 69% in 2008 to 58% in 2018. In contrast,
the rate at which civil suits are filed has stayed
consistent, ranging from 22% to 24% within the same
timeframe.
FIG. 43 How often is litigation pursued against occupational
fraud perpetrators?
69%
65%
64%
61%
59%
58%
Referred to law enforcement
22%
24%
23%
23%
22%
23%
2010
2012
We also asked respondents about the
results of any litigation pursued; this
data is shown in Figures 44 and 45. On
the criminal side, most cases that were
referred to law enforcement ended in a
plea agreement or a conviction at trial
(73% combined). If a case referred to law
enforcement did not end in a conviction,
it was most likely because law enforcement declined to prosecute (18%). The
results suggest that once law enforcement decides that it will proceed with
prosecution, it has an overwhelming
chance of securing a conviction; only 1%
of defendants obtained an acquittal.
In addition, more than half of judgments in civil suits were favorable to
victims, with an additional 27% of cases
being settled. Perpetrators obtained a
favorable judgment in only 15% of civil
cases that went to trial.
Civil suit filed
2008
Results of Criminal or Civil Litigation
2014
2016
FIG. 44 What were the results of criminal referrals?
53%
2018
FIG. 45 What were the results of civil suits?
53%
27%
20%
18%
15%
7%
5%
1%
Pleaded Convicted Declined
Other
guilty/no at trial to prosecute
contest
Acquitted
Judgment
for victim
Settled
Judgment
for perpetrator
Other
Case Results Report to the Nations
49
Reasons for Not
Referring Cases to
Law Enforcement
We know that the rate
of victim organizations
reporting occupational
fraud to law enforcement has decreased in
recent years (see Figure
43 on pg. 49). There
are many reasons why
organizations might
decline to refer cases
for prosecution. In our
study, the top cause
cited was fear of bad
publicity (38%), followed
by internal discipline being sufficient (33%) and
costliness (24%).
FIG. 46 Why do organizations decide not to refer cases to law enforcement?
Fear of bad publicity
38%
Internal discipline sufficient
33%
Too costly
24%
Private settlement
21%
Lack of evidence
12%
Other
12%
Civil suit
4%
Perpetrator disappeared
2%
WHEN VICTIM ORGANIZATIONS ARE FINED
In addition to the direct cost of the fraud, some organizations receive monetary fines from
authorities for having inadequate controls or allowing the fraud to occur.
the median fine was
$100,000
��
�
���
14%
OF FINES
34%
OF FINES
$10,000–$99,999
<$10,000
50
Case Results Report to the Nations
��
�
���
20%
31%
OF FINES
$100,000–$999,999
OF FINES
Financial statement fraud schemes
were the most likely to result in a fine
to the victim organization
$1,000,000+
17% 11% 8%
Financial
statement fraud
Corruption
Asset
misappropriation
RECOVERING FRAUD LOSSES
After a fraud has been detected, the victim might try to recover its losses from the fraudster or
other sources. Our data shows that victims are rarely made whole.
53%
Recovered
NOTHING
32%
15%
MaDe a Partial
Recovery
Recovered
ALL LOSSES
The more victims lose,
the less likely they are
to make a FULL RECOVERY
LOST
<$10,000
LOST
$10,000–$100,000
LOST
$100,001–$1,000,000
LOST
$1,000,000+
��� ��� ��� ���
30%
RECOVER
ALL LOSSES
16%
RECOVER
ALL LOSSES
13%
RECOVER
ALL LOSSES
8%
RECOVER
ALL LOSSES
Case Results Report to the Nations
51
METHODOLOGY
Who contributed to our survey?
The 2018 Report to the Nations is based on
the results of the 2017 Global Fraud Survey, an
online survey opened to 41,573 Certified Fraud
Examiners (CFEs) from July 2017 to October
2017. As part of the survey, respondents were
asked to provide a narrative description of the
single largest fraud case they had investigated
since January 2016. Additionally, after completing the survey the first time, respondents
were provided the option to submit information
about a second case that they investigated.
Cases submitted were required to
meet the following four criteria:
1. The case must have involved occupational fraud (defined as fraud committed
by a person against the organization for
which he or she works).
2. The investigation must have occurred
between January 2016 and the time of
survey participation.
3. The investigation must have been complete at the time of survey participation.
4. The respondent must have been
reasonably sure the perpetrator(s) was
(were) identified.
52
Methodology Report to the Nations
Respondents were then presented
with 76 questions to answer regarding the particular details of the
fraud case, including information
about the perpetrator, the victim
organization, and the methods of
fraud employed, as well as fraud
trends in general. (Respondents
were not asked to identify the perpetrator or the victim.) We received
7,232 total responses to the survey,
2,690 of which were usable for
purposes of this report. The data
contained herein is based solely on
the information provided in these
2,690 survey responses.
Analysis Methodology
In calculating the percentages
discussed throughout this report, we used the total number of
complete and relevant responses
for the question(s) being analyzed.
Specifically, we excluded any blank
responses or instances where the
participant indicated that he or
she did not know the answer to a
question. Consequently, the total
number of cases included in each
analysis varies.
In addition, several survey questions allowed participants to select
more than one answer. Therefore,
the sum of percentages in many figures throughout the report exceeds
100%. The sum of percentages in
other figures might not be exactly
100% (i.e., it might be 99% or 101%)
due to rounding of individual category data.
Unless otherwise indicated, all loss
amounts discussed throughout the
report are calculated using median
loss rather than mean, or average,
loss. Average losses were skewed by
a limited number of very high-dollar
frauds. Using median loss provides a
more conservative—and we believe
more accurate—picture of the typical
impact of occupational fraud schemes.
Additionally, we excluded median loss
calculations for categories for which
there were fewer than ten responses.
Because the direct losses caused by
financial statement frauds are typically
spread among numerous stakeholders, obtaining an accurate estimate for
this amount is extremely difficult. Consequently, for schemes involving financial statement fraud, we asked survey
participants to provide the gross
amount of the financial statement misstatement (over- or under-statement)
involved in the scheme. All losses
reported for financial statement frauds
throughout this report are based on
those reported amounts.
Methodology Report to the Nations
53
Survey Participants
To provide context for the survey responses and to understand who investigates cases of occupational fraud,
we asked respondents to provide certain information about their professional experience and qualifications.
Primary Occupation
FIG. 47 What was the primary occupation of survey participants?
As noted in Figure 47,
37% of survey respondents indicated that their
primary occupation is as
a fraud examiner/investigator, followed by 22%
who indicated they are
internal auditors.
Fraud examiner/investigator
37%
Internal auditor
Accounting/finance professional
9%
Law enforcement
Compliance and ethics professional
Risk and controls professional
External/independent auditor
Consultant
Other
Corporate security and loss prevention
Attorney
Private investigator
Bank examiner
IT/computer forensics specialist
Educator
54
Methodology Report to the Nations
22%
7%
5%
4%
4%
4%
3%
3%
1%
1%
1%
1%
<1%
Nature of Fraud Examination Role
More than half of the CFEs who participated
in our study work in-house, conducting fraud
examinations on behalf of a single company
or agency. Twenty-seven percent work for a
professional services firm that conducts fraud
examinations for client organizations, while 18%
work in law enforcement and conduct fraud examinations under the authority of their agency.
���
���
FIG. 48 What was the professional role
of the survey participants?
Other
2%
Law
enforcement
18%
In-house
examiner
53%
Experience
The CFEs who participated in our study had a
median 11 years of experience in the fraud examination field, with over 30% having more than
15 years of experience.
Respondents also provided information on the
total number of fraud cases they worked on
in the prior two years. As shown in Figure 50,
one-quarter investigated more than 20 cases, while 41% investigated five or fewer cases
during that time.
Professional
services firm
27%
FIG. 49 How much fraud examination
experience did survey participants have?
More than
20 years
19%
5 years
or fewer
22%
16–20 years
13%
FIG. 50 How many fraud cases have survey
participants investigated in the past two years?
More than 20 cases (25%)
16–20 cases (7%)
11–15 cases (7%)
11–15 years
18%
6–10 years
28%
6–10 cases (20%)
5 or fewer cases (41%)
Methodology Report to the Nations
55
REGIONAL FOCUS
ASIA-PACIFIC
FIG. 51 What are the most common occupational
fraud schemes in the Asia-Pacific region?
FIG. 52 How is occupational fraud initially
detected in the Asia-Pacific region?
Corruption
Tip
Noncash
Expense reimbursements
Billing
Financial statement fraud
Cash on hand
Check and payment tampering
Cash larceny
Skimming
Payroll
Register disbursements
56
Asia-Pacific Report to the Nations
47%
51%
25%
17%
Internal audit
Management review
External audit
14%
Other
13%
By accident
13%
Document examination
8%
Account reconciliation
8%
7%
4%
3%
Surveillance/monitoring
Notification by law enforcement
IT controls
Confession
16%
10%
8%
4%
4%
3%
3%
2%
1%
1%
<1%
FIG. 53 What anti-fraud controls are the most common in
the Asia-Pacific region?
Control
FIG. 55 Cases by country in the
Asia-Pacific region
Percent of cases
Country
Number of cases
External audit of financial statements
93%
Australia
Code of conduct
87%
Cambodia
Internal audit department
80%
China
Management certification of financial statements
79%
East Timor
1
Hotline
74%
Hong Kong
10
External audit of internal controls over financial reporting
73%
Indonesia
29
Management review
71%
Japan
Independent audit committee
69%
Macau
Anti-fraud policy
60%
Malaysia
Fraud training for employees
59%
Myanmar (Burma)
1
Fraud training for managers/executives
57%
New Zealand
8
Employee support programs
49%
Papua New Guinea
Dedicated fraud department, function, or team
42%
Philippines
25
Formal fraud risk assessments
37%
Singapore
17
Surprise audits
34%
South Korea
6
Proactive data monitoring/analysis
32%
Taiwan
6
Job rotation/mandatory vacation
16%
Thailand
3
Rewards for whistleblowers
11%
Vietnam
5
38
2
49
4
1
14
1
Total cases:
FIG. 54 How does the perpetrator’s level of authority
relate to occupational fraud in the Asia-Pacific region?
PERCENT OF CASES
41%
30%
26%
MEDIAN LOSS:
usd 236,000
���
11%
OF ALL CASES
220
Employee
Manager
Owner/executive
$58,000
MEDIAN LOSS
220
CASES
$323,000
$1,000,000
Asia-Pacific Report to the Nations
57
REGIONAL FOCUS
CANADA
FIG. 56 What are the most common occupational
fraud schemes in Canada?
FIG. 57 How is occupational fraud initially
detected in Canada?
Corruption
Tip
Billing
Noncash
Financial statement fraud
Skimming
Cash on hand
Expense reimbursements
Check and payment tampering
Payroll
Register disbursements
Cash larceny
58
Canada Report to the Nations
32%
40%
20%
18%
14%
Internal audit
Management review
Other
Surveillance/monitoring
13%
External audit
13%
Account reconciliation
11%
Document examination
10%
By accident
6%
IT controls
3%
3%
21%
15%
7%
6%
5%
5%
4%
4%
1%
FIG. 58 What anti-fraud controls are the most common in
Canada?
Control
Percent of cases
Code of conduct
80%
External audit of financial statements
72%
Internal audit department
71%
Employee support programs
71%
Management review
68%
Management certification of financial statements
67%
Independent audit committee
61%
Hotline
57%
External audit of internal controls over financial reporting
54%
Fraud training for managers/executives
51%
Fraud training for employees
51%
Anti-fraud policy
44%
Proactive data monitoring/analysis
38%
Formal fraud risk assessments
35%
Dedicated fraud department, function, or team
33%
Surprise audits
28%
Job rotation/mandatory vacation
15%
Rewards for whistleblowers
10%
MEDIAN LOSS:
usd 200,000
��
4%
OF ALL CASES
82
CASES
FIG. 59 How does the perpetrator’s level of authority
relate to occupational fraud in Canada?
PERCENT OF CASES
47%
27%
23%
MEDIAN LOSS
Employee
$156,000
Manager
Owner/executive
$205,000
$600,000
Canada Report to the Nations
59
REGIONAL FOCUS
EASTERN EUROPE
AND WESTERN/
CENTRAL ASIA
FIG. 60 What are the most common occupational
fraud schemes in Eastern Europe and Western/
Central Asia?
FIG. 61 How is occupational fraud initially
detected in Eastern Europe and Western/
Central Asia?
Corruption
Tip
Noncash
Billing
Expense reimbursements
Cash larceny
Financial statement fraud
Cash on hand
Check and payment tampering
Skimming
Register disbursements
Payroll
60
Eastern Europe and Western/Central Asia Report to the Nations
60%
30%
15%
11%
40%
Internal audit
Management review
By accident
Other
10%
Account reconciliation
10%
Surveillance/monitoring
9%
IT controls
5%
4%
4%
2%
Notification by law enforcement
External audit
Document examination
20%
16%
7%
6%
3%
2%
2%
1%
1%
1%
FIG. 62 What anti-fraud controls are the most common in
Eastern Europe and Western/Central Asia?
Control
FIG. 64 Cases by country in Eastern
Europe and Western/Central Asia
Country
Percent of cases
Number of cases
External audit of financial statements
95%
Bulgaria
3
Internal audit department
91%
Czech Republic
3
Code of conduct
83%
Georgia
1
Management certification of financial statements
79%
Hungary
1
Management review
76%
Kazakhstan
4
Hotline
75%
Kosovo
2
External audit of internal controls over financial reporting
75%
Latvia
2
Independent audit committee
73%
Lithuania
1
Anti-fraud policy
66%
Macedonia
2
Fraud training for employees
58%
Montenegro
1
Dedicated fraud department, function, or team
57%
Poland
5
Fraud training for managers/executives
56%
Romania
11
Formal fraud risk assessments
46%
Russia
15
Surprise audits
40%
Serbia
9
Proactive data monitoring/analysis
36%
Slovakia
4
Employee support programs
27%
Slovenia
4
17%
Tajikistan
5%
Turkey
13
Ukraine
3
Uzbekistan
1
Job rotation/mandatory vacation
Rewards for whistleblowers
FIG. 63 How does the perpetrator’s level of authority
relate to occupational fraud in Eastern Europe and
Western/Central Asia?
PERCENT OF CASES
33%
28%
Owner/executive
86
usd 150,000
��
4%
OF ALL CASES
86
CASES
$155,000
MEDIAN LOSS
$28,000
Manager
Total cases:
MEDIAN LOSS:
39%
Employee
1
$3,700,000
Eastern Europe and Western/Central Asia Report to the Nations
61
REGIONAL FOCUS
LATIN
AMERICA AND
THE CARIBBEAN
FIG. 65 What are the most common occupational
fraud schemes in Latin America and the Caribbean?
FIG. 66 How is occupational fraud initially
detected in Latin America and the Caribbean?
Corruption
Tip
Noncash
Cash on hand
Financial statement fraud
Skimming
Cash larceny
Billing
Payroll
Check and payment tampering
Register disbursements
Expense reimbursements
62
Latin America and the Caribbean Report to the Nations
49%
51%
22%
17%
14%
12%
11%
11%
9%
8%
3%
1%
Internal audit
Management review
Surveillance/monitoring
Other
External audit
Account reconciliation
By accident
Document examination
Confession
IT controls
14%
10%
5%
5%
5%
5%
4%
3%
2%
1%
FIG. 67 What anti-fraud controls are the most common in
Latin America and the Caribbean?
Control
FIG. 69 Cases by country in Latin
America and the Caribbean
Percent of cases
Country
Number of cases
Internal audit department
89%
Antigua and Barbuda
1
External audit of financial statements
86%
Argentina
8
Code of conduct
81%
Bahamas
3
Management certification of financial statements
73%
Belize
1
Management review
71%
Brazil
22
External audit of internal controls over financial reporting
70%
Chile
Hotline
68%
Colombia
Independent audit committee
61%
Costa Rica
1
Employee support programs
51%
Curaçao
2
Anti-fraud policy
50%
Grenada
1
Fraud training for employees
50%
Haiti
1
Fraud training for managers/executives
48%
Honduras
1
Dedicated fraud department, function, or team
44%
Jamaica
6
Formal fraud risk assessments
40%
Mexico
29
Surprise audits
35%
Nicaragua
3
Proactive data monitoring/analysis
32%
Peru
5
Job rotation/mandatory vacation
26%
Saint Kitts and Nevis
1
6%
Trinidad and Tobago
7
Rewards for whistleblowers
8
10
Total cases:
FIG. 68 How does the perpetrator’s level of authority
relate to occupational fraud in Latin America and the
Caribbean?
40%
PERCENT OF CASES
40%
19%
110
MEDIAN LOSS:
usd 193,000
��
5%
OF ALL CASES
110
CASES
Employee
Owner/executive
$150,000
MEDIAN LOSS
$100,000
Manager
$900,000
Latin America and the Caribbean Report to the Nations
63
REGIONAL FOCUS
MIDDLE EAST
AND NORTH
AFRICA
FIG. 70 What are the most common occupational
fraud schemes in the Middle East and North Africa?
FIG. 71 How is occupational fraud initially
detected in the Middle East and North Africa?
Corruption
Tip
Cash on hand
Noncash
Cash larceny
Billing
Skimming
Expense reimbursements
Check and payment tampering
Payroll
Financial statement fraud
Register disbursements
64
Middle East and North Africa Report to the Nations
38%
49%
23%
19%
15%
15%
13%
9%
8%
Internal audit
Management review
Other
Account reconciliation
Surveillance/monitoring
By accident
Document examination
4%
Notification by law enforcement
4%
External audit
2%
20%
16%
9%
5%
4%
2%
2%
2%
2%
FIG. 72 What anti-fraud controls are the most common in
the Middle East and North Africa?
Control
FIG. 74 Cases by country in the Middle
East and North Africa
Percent of cases
Country
Number of cases
External audit of financial statements
93%
Algeria
1
Internal audit department
85%
Bahrain
2
Management certification of financial statements
81%
Cyprus
5
Code of conduct
78%
Egypt
8
External audit of internal controls over financial reporting
69%
Iraq
1
Management review
68%
Israel
4
Independent audit committee
67%
Jordan
10
Hotline
59%
Kuwait
5
Surprise audits
59%
Lebanon
2
Anti-fraud policy
54%
Oman
4
Fraud training for managers/executives
47%
Qatar
8
Fraud training for employees
47%
Saudi Arabia
Dedicated fraud department, function, or team
44%
Syria
Formal fraud risk assessments
40%
United Arab Emirates
Proactive data monitoring/analysis
40%
Employee support programs
33%
Total cases:
Job rotation/mandatory vacation
23%
Rewards for whistleblowers
1
34
101
9%
FIG. 73 How does the perpetrator’s level of authority
relate to occupational fraud in the Middle East and North
Africa?
41%
33%
PERCENT OF CASES
16
23%
MEDIAN LOSS:
usd 200,000
��
5%
OF ALL CASES
101
CASES
Employee
Owner/executive
$175,000
MEDIAN LOSS
$105,000
Manager
$1,250,000
Middle East and North Africa Report to the Nations
65
REGIONAL FOCUS
SOUTHERN
ASIA
FIG. 75 What are the most common occupational
fraud schemes in Southern Asia?
FIG. 76 How is occupational fraud initially
detected in Southern Asia?
Corruption
Tip
Noncash
Billing
Expense reimbursements
Skimming
Financial statement fraud
Cash on hand
Cash larceny
Check and payment tampering
Payroll
Register disbursements
62%
20%
13%
13%
12%
10%
9%
8%
7%
3%
1%
53%
Internal audit
Management review
Surveillance/monitoring
Other
External audit
By accident
Account reconciliation
Notification by law enforcement
Document examination
Confession
IT controls
66
Southern Asia Report to the Nations
13%
10%
4%
3%
3%
3%
3%
2%
2%
2%
1%
FIG. 77 What anti-fraud controls are the most common in
Southern Asia?
Control
FIG. 79 Cases by country in Southern Asia
Country
Number of cases
Percent of cases
Afghanistan
External audit of financial statements
90%
Bangladesh
Internal audit department
88%
Code of conduct
88%
Maldives
2
Management certification of financial statements
85%
Pakistan
13
External audit of internal controls over financial reporting
77%
Total cases:
96
Independent audit committee
76%
Management review
76%
Hotline
63%
Anti-fraud policy
58%
Fraud training for employees
56%
Surprise audits
53%
Fraud training for managers/executives
53%
Dedicated fraud department, function, or team
49%
Employee support programs
43%
Formal fraud risk assessments
42%
Proactive data monitoring/analysis
35%
Job rotation/mandatory vacation
25%
Rewards for whistleblowers
9%
FIG. 78 How does the perpetrator’s level of authority
relate to occupational fraud in Southern Asia?
PERCENT OF CASES
46%
6
3
India
72
MEDIAN LOSS:
usd 100,000
��
5%
OF ALL CASES
96
CASES
31%
19%
Employee
Manager
Owner/executive
MEDIAN LOSS
$50,000
$100,000
$350,000
Southern Asia Report to the Nations
67
REGIONAL FOCUS
SUB-SAHARAN
AFRICA
FIG. 80 What are the most common occupational
fraud schemes in Sub-Saharan Africa?
Corruption
Cash on hand
Noncash
Billing
Check and payment tampering
Cash larceny
Expense reimbursements
Skimming
Financial statement fraud
Payroll
Register disbursements
68
Sub-Saharan Africa Report to the Nations
FIG. 81 How is occupational fraud initially
detected in Sub-Saharan Africa?
49%
21%
18%
17%
Tip
40%
Internal audit
Management review
Account reconciliation
By accident
15%
Other
14%
Document examination
12%
External audit
10%
Surveillance/monitoring
9%
6%
2%
Notification by law enforcement
IT controls
Confession
19%
12%
7%
6%
4%
4%
2%
2%
1%
1%
1%
FIG. 82 What anti-fraud controls are the most common in
Sub-Saharan Africa?
Control
Percent of cases
External audit of financial statements
90%
Code of conduct
89%
Internal audit department
87%
Management certification of financial statements
81%
Independent audit committee
73%
External audit of internal controls over financial reporting
72%
Hotline
70%
Management review
69%
Anti-fraud policy
60%
Fraud training for employees
55%
Fraud training for managers/executives
52%
Employee support programs
50%
Formal fraud risk assessments
46%
Surprise audits
46%
Dedicated fraud department, function, or team
43%
Proactive data monitoring/analysis
40%
Job rotation/mandatory vacation
25%
Rewards for whistleblowers
20%
FIG. 83 How does the perpetrator’s level of authority
relate to occupational fraud in Sub-Saharan Africa?
48%
Country
Number of cases
Angola
3
Botswana
1
Cameroon
1
Central African Republic
1
Chad
3
Congo, Democratic Republic of the
3
Congo, Republic of the
1
Cote d’Ivoire
5
Equatorial Guinea
1
Gambia
1
Ghana
8
Guinea
1
Kenya
34
Liberia
8
Madagascar
2
Malawi
3
Mali
4
Mauritania
1
Mauritius
2
Mozambique
1
Namibia
4
Nigeria
55
Rwanda
36%
PERCENT OF CASES
FIG. 84 Cases by country in Sub-Saharan
Africa
1
Senegal
1
Somalia
2
South Africa
87
Sudan
14%
1
Swaziland
1
Tanzania
5
Uganda
11
Zambia
5
Zimbabwe
10
Total cases:
Manager
$55,000
$73,000
Owner/executive
MEDIAN LOSS:
usd 90,000
MEDIAN LOSS
Employee
267
��
13%
OF ALL CASES
267
CASES
$2,716,000
Sub-Saharan Africa Report to the Nations
69
REGIONAL FOCUS
UNITED
STATES
FIG. 85 What are the most common occupational
fraud schemes in the United States?
FIG. 86 How is occupational fraud initially
detected in the United States?
Corruption
Tip
Billing
Noncash
Expense reimbursements
Cash on hand
Check and payment tampering
Skimming
Cash larceny
Payroll
Financial statement fraud
Register disbursements
37%
30%
26%
21%
17%
15%
15%
14%
11%
10%
9%
3%
Management review
Internal audit
By accident
Other
Account reconciliation
Document examination
External audit
Notification by law enforcement
Surveillance/monitoring
Confession
IT controls
70
United States Report to the Nations
14%
13%
9%
7%
5%
5%
3%
3%
3%
1%
1%
FIG. 87 What anti-fraud controls are the most common in
the United States?
Control
Percent of cases
Code of conduct
73%
External audit of financial statements
69%
Employee support programs
62%
Management certification of financial statements
61%
Internal audit department
60%
External audit of internal controls over financial reporting
60%
Management review
59%
Hotline
56%
Fraud training for employees
50%
Fraud training for managers/executives
49%
Independent audit committee
49%
Anti-fraud policy
47%
Formal fraud risk assessments
37%
Proactive data monitoring/analysis
36%
Dedicated fraud department, function, or team
35%
Surprise audits
31%
Job rotation/mandatory vacation
15%
Rewards for whistleblowers
12%
MEDIAN LOSS:
usd 108,000
��
48%
OF ALL CASES
1,000
CASES
FIG. 88 How does the perpetrator’s level of authority
relate to occupational fraud in the United States?
PERCENT OF CASES
48%
31%
18%
Employee
Manager
Owner/executive
$50,000
MEDIAN LOSS
$150,000
$637,000
United States Report to the Nations
71
REGIONAL FOCUS
WESTERN
EUROPE
FIG. 89 What are the most common occupational
fraud schemes in Western Europe?
FIG. 90 How is occupational fraud initially
detected in Western Europe?
Corruption
Tip
Billing
Noncash
Cash on hand
Expense reimbursements
Cash larceny
Check and payment tampering
Financial statement fraud
Skimming
Payroll
Register disbursements
72
Western Europe Report to the Nations
36%
28%
17%
46%
Management review
Internal audit
Other
15%
Account reconciliation
13%
8%
8%
8%
By accident
Document examination
External audit
Surveillance/monitoring
5%
Notification by law enforcement
4%
IT controls
1%
Confession
11%
9%
6%
5%
5%
4%
4%
4%
2%
2%
1%
FIG. 91 What anti-fraud controls are the most common in
Western Europe?
Control
Percent of cases
Code of conduct
93%
Management certification of financial statements
88%
External audit of financial statements
88%
External audit of internal controls over financial reporting
85%
Management review
83%
Internal audit department
80%
Independent audit committee
78%
Hotline
76%
Anti-fraud policy
65%
Fraud training for managers/executives
63%
Fraud training for employees
59%
Formal fraud risk assessments
53%
Dedicated fraud department, function, or team
49%
Employee support programs
48%
Surprise audits
41%
Proactive data monitoring/analysis
38%
Job rotation/mandatory vacation
22%
Rewards for whistleblowers
10%
FIG. 92 How does the perpetrator’s level of authority
relate to occupational fraud in Western Europe?
41%
34%
PERCENT OF CASES
FIG. 93 Cases by country in Western
Europe
18%
Country
Number of cases
Austria
4
Belgium
7
Denmark
2
Finland
2
France
4
Germany
16
Greece
22
Iceland
1
Ireland
2
Italy
8
Netherlands
10
Norway
2
Portugal
1
Spain
4
Switzerland
11
United Kingdom
34
Total cases:
130
MEDIAN LOSS:
usd 200,000
��
6%
OF ALL CASES
130
CASES
Employee
Manager
Owner/executive
MEDIAN LOSS
$90,000
$235,000
$500,000
Western Europe Report to the Nations
73
INDEX OF FIGURES
Age of Perpetrator
How does the perpetrator’s age relate to occupational fraud?
41
Criminal and Employment
Background of Perpetrator
Do perpetrators tend to have prior employmentrelated disciplinary actions for fraud?
Anti-Fraud Controls
43
32
Do perpetrators tend to have prior fraud convictions?
42
How does the presence of anti-fraud controls relate to median loss?
28
Was a background check run on the perpetrator prior to hiring?
30
How does the presence of anti-fraud
controls relate to the duration of fraud?
29
What types of background checks were
run on the perpetrator prior to hiring?
30
What anti-fraud controls are most common?
27
How do internal control weaknesses vary by scheme type?
Based on region
What are the primary internal control weaknesses
that contribute to occupational fraud?
57–73
31
Demographics of Survey Participants
How many fraud cases have survey participants
investigated in the past two years?
55
How much fraud examination experience did survey participants have? 55
Behavioral Red Flags of Perpetrator
What was the primary occupation of survey participants?
54
Do fraud perpetrators also engage in non-fraud-related misconduct? 46
What was the professional role of the survey participants?
55
Do fraud perpetrators experience negative
HR-related issues prior to or during their frauds?
46
Department of Perpetrator
How often do perpetrators exhibit behavioral red flags?
45
Spotlight: The red flags of fraud
44
What are the most common occupational
fraud schemes in high-risk departments?
38
What departments pose the greatest risk for occupational fraud?
37
Case Results
Does the perpetrator’s position affect the punishment for fraud?
48
How do victim organizations punish fraud perpetrators?
47
Detection Method
How does detection method relate to fraud duration and loss?
18
How is occupational fraud initially detected?
17
How often is litigation pursued against
occupational fraud perpetrators?
49
Spotlight: Recovering fraud losses
51
Who reports occupational fraud?
17
What were the results of civil suits?
49
Spotlight: Hotlines and reporting mechanisms
19
What were the results of criminal referrals?
49
Spotlight: When victim organizations are fined
50
Based on region
56–72
Distribution of Losses
Why do organizations decide not to refer cases to law enforcement? 50
How much does an occupational fraud cost the victim organization?
Concealment of Fraud Schemes
Education Level of Perpetrator
Spotlight: Concealing fraud
14–15
How does the perpetrator’s education
level relate to occupational fraud?
9
41
Gender of Perpetrator
74
Index of Figures Report to the Nations
How does gender distribution and median loss
vary based on the perpetrator’s level of authority?
40
How does the gender distribution of perpetrators vary by region?
39
How does the perpetrator’s gender relate to occupational fraud?
39
Geographical Region of
Victim Organization
Countries with reported cases and median loss for each region
How does the gender distribution of perpetrators vary by region?
Scheme Duration
7
39
How does detection method relate to fraud duration and loss?
18
How does the duration of a fraud relate to median loss?
14
How does the perpetrator’s level of authority relate to scheme duration? 34
56–73
How does the presence of anti-fraud
controls relate to the duration of fraud?
29
Asia-Pacific
56–57
How long do different occupational fraud schemes last?
15
Canada
58–59
Eastern Europe and Western/Central Asia
60–61
Scheme Type
Latin America and the Caribbean
62–63
How do internal control weaknesses vary by scheme type?
32
Middle East and North Africa
64–65
How is occupational fraud committed?
10
Southern Asia
66–67
How long do different occupational fraud schemes last?
15
Sub-Saharan Africa
68–69
United States
70–71
How often do fraudsters commit more than
one type of occupational fraud?
12
Western Europe
72–73
Occupational Fraud and Abuse Classification System (the Fraud Tree)
11
Spotlight: Corruption
13
What are the most common occupational
fraud schemes in high-risk departments?
38
Regional focus (most common schemes, detection, anti-fraud
controls, perpetrator’s level of authority, and cases by country)
Industry of Victim Organization
How does occupational fraud affect
organizations in different industries?
24
What are the most common occupational
fraud schemes in various industries?
What are the most common occupational
fraud schemes in various industries?
25
25
What are the most common occupational
fraud schemes based on region?
56–72
What asset misappropriation schemes present the greatest risk?
Number of Perpetrators
How does the number of perpetrators in a
scheme relate to occupational fraud?
42
Position of Perpetrator
12
Size of Victim Organization
How does an organization’s size relate to its occupational fraud risk? 21
Spotlight: Fraud in small businesses
22–23
How does gender distribution and median loss
vary based on the perpetrator’s level of authority?
40
Tenure of Perpetrator
How does the perpetrator’s level of
authority relate to occupational fraud?
33
How does the perpetrator’s tenure relate to
median loss at different levels of authority?
36
How does the perpetrator’s tenure relate to occupational fraud?
35
Based on region
57–73
How does the perpetrator’s level of
authority relate to scheme duration?
34
How does the perpetrator’s tenure relate
to median loss at different levels of authority?
36
Spotlight: Fraud committed by owners and executives
34–35
Type of Victim Organization
What levels of government are victimized?
20
What types of organizations are victimized?
20
Index of Figures Report to the Nations
75
FRAUD PREVENTION
CHECKLIST
The most cost-effective way to limit fraud losses is to prevent fraud from occurring. This checklist is designed
to help organizations test the effectiveness of their fraud prevention measures. Additional guidance, resources, and tools for managing organizational fraud risk can be found at ACFE.com/fraudrisktools.
1.
Is ongoing anti-fraud training provided to all
employees of the organization?
3.
❑❑ Do employees understand what constitutes
fraud?
❑❑ Is possible fraudulent conduct aggressively
sought out, rather than dealt with passively?
❑❑ Have the costs of fraud to the company and
everyone in it — including lost profits, adverse
publicity, potential job loss, and decreased
morale and productivity — been made clear
to employees?
❑❑ Does the organization send the message
that it actively seeks out fraudulent conduct
through fraud assessment questioning by
auditors?
❑❑ Do employees know where to seek advice
when faced with uncertain ethical decisions,
and do they believe that they can speak
freely?
❑❑ Are surprise fraud audits performed in
addition to regularly scheduled audits?
❑❑ Is continuous monitoring software used to
detect fraud and, if so, has the use of such
software been made known throughout the
organization?
❑❑ Has a policy of zero-tolerance for fraud been
communicated to employees through words
and actions?
2.
Is an effective fraud reporting mechanism in
place?
❑❑ Have employees been taught how to communicate concerns about known or potential
wrongdoing?
❑❑ Is there a reporting channel, such as a
third-party hotline, available to employees?
❑❑ Do employees trust that they can report suspicious activity anonymously and/or confidentially (where legally permissible) and without
fear of reprisal?
❑❑ Has it been made clear to employees that
reports of suspicious activity will be promptly
and thoroughly evaluated?
❑❑ Do reporting policies and mechanisms extend to
vendors, customers, and other outside parties?
76
Fraud Prevention Checklist Report to the Nations
To increase employees’ perception of detection, are the following proactive measures
taken and publicized to employees?
4.
Is the management climate/tone at the top one
of honesty and integrity?
❑❑ Are employees surveyed to determine the
extent to which they believe management
acts with honesty and integrity?
❑❑ Are performance goals realistic?
❑❑ Have fraud prevention goals been incorporated into the performance measures that are
used to evaluate managers and to determine
performance-related compensation?
❑❑ Has the organization established, implemented, and tested a process for oversight of
fraud risks by the board of directors or others
charged with governance (e.g., the audit
committee)?
5.
Are fraud risk assessments performed to proactively identify and mitigate the company’s
vulnerabilities to internal and external fraud?
6.
Are strong anti-fraud controls in place and
operating effectively, including the following?
❑❑ Proper separation of duties
❑❑ Use of authorizations
❑❑ Physical safeguards
❑❑ Job rotations
❑❑ Mandatory vacations
7.
Does the internal audit department, if one
exists, have adequate resources and authority
to operate effectively and without undue influence from senior management?
8.
Does the hiring policy include the following
(where permitted by law)?
9.
Are employee support programs in place to
assist employees struggling with addiction,
mental/emotional health, family, or financial
problems?
10. Is an open-door policy in place that allows
employees to speak freely about pressures,
providing management the opportunity to
alleviate such pressures before they become
acute?
11. Are regular, anonymous surveys conducted to
assess employee morale?
❑❑ Past employment verification
❑❑ Criminal and civil background checks
❑❑ Credit checks
❑❑ Drug screening
❑❑ Education verification
❑❑ References checks
Fraud Prevention Checklist Report to the Nations
77
GLOSSARY OF
TERMINOLOGY
Asset misappropriation: A scheme in which an employee
steals or misuses the employing organization’s resources (e.g., theft of company cash, false billing schemes, or
inflated expense reports)
Billing scheme: A fraudulent disbursement scheme in which
a person causes his or her employer to issue a payment by
submitting invoices for fictitious goods or services, inflated
invoices, or invoices for personal purchases (e.g., employee
creates a shell company and bills employer for services not
actually rendered; employee purchases personal items and
submits an invoice to employer for payment)
Hotline: A mechanism to report fraud or other violations,
whether managed internally or by an external party
Management review: The process of management reviewing organizational controls, processes, accounts, or transactions for adherence to company policies and expectations
Cash larceny: A scheme in which an incoming payment is
stolen from an organization after it has been recorded on
the organization’s books and records (e.g., employee steals
cash and checks from daily receipts before they can be
deposited in the bank)
Noncash misappropriations: Any scheme in which an
employee steals or misuses noncash assets of the victim
organization (e.g., employee steals inventory from a warehouse or storeroom; employee steals or misuses confidential customer information)
Cash-on-hand misappropriations: A scheme in which the
perpetrator misappropriates cash kept on hand at the victim
organization’s premises (e.g., employee steals cash from a
company vault)
Occupational fraud: The use of one’s occupation for
personal enrichment through the deliberate misuse or
misapplication of the employing organization’s resources or
assets
Check or payment tampering scheme8: A fraudulent
disbursement scheme in which a person steals his or her
employer’s funds by intercepting, forging, or altering a
check or electronic payment drawn on one of the organization’s bank accounts (e.g., employee steals blank company
checks and makes them out to himself or herself or an
accomplice; employee re-routes an outgoing electronic
payment to a vendor to be deposited into his or her own
bank account)
Payroll scheme: A fraudulent disbursement scheme in
which an employee causes his or her employer to issue
a payment by making false claims for compensation (e.g.,
employee claims overtime for hours not worked; employee
adds ghost employees to the payroll)
Corruption: A scheme in which an employee misuses his or
her influence in a business transaction in a way that violates
his or her duty to the employer in order to gain a direct or
indirect benefit (e.g., schemes involving bribery or conflicts
of interest)
Register disbursements scheme: A fraudulent disbursement scheme in which an employee makes false entries on
a cash register to conceal the fraudulent removal of cash
(e.g., employee fraudulently voids a sale on his or her cash
register and steals the cash)
Employee support programs: Programs that provide
support and assistance to employees dealing with personal
issues or challenges, such as counseling services for drug,
family, or financial problems
Skimming: A scheme in which an incoming payment is
stolen from an organization before it is recorded on the
organization’s books and records (e.g., employee accepts
payment from a customer but does not record the sale and
instead pockets the money)
Expense reimbursements scheme: A fraudulent disbursement scheme in which an employee makes a claim for reimbursement of fictitious or inflated business expenses (e.g.,
employee files fraudulent expense report, claiming personal
travel, nonexistent meals)
78
Financial statement fraud: A scheme in which an employee
intentionally causes a misstatement or omission of material
information in the organization’s financial reports (e.g., recording fictitious revenues, understating reported expenses, or artificially inflating reported assets)
Glossary of Terminology Report to the Nations
Primary perpetrator: The person who worked for the victim
organization and who was reasonably confirmed as the
primary culprit in the case
In previous reports, this category was referred to simply as check tampering. However, to better reflect the increasing shift toward electronic
payment methods, we have changed the category title to check and
payment tampering.
8
ABOUT THE ACFE
Founded in 1988 by Dr. Joseph T. Wells, CFE, CPA, the Association of Certified Fraud Examiners (ACFE) is the
world’s largest anti-fraud organization and premier provider of anti-fraud training and education. Together with
nearly 85,000 members in more than 180 countries, the ACFE is reducing business fraud worldwide and providing the training and resources needed to fight fraud more effectively. The ACFE provides educational tools
and practical solutions for anti-fraud professionals through events, education, publications, networking, and
educational tools for colleges and universities.
Certified Fraud Examiners
The ACFE offers its members the opportunity for professional certification with the Certified
Fraud Examiner (CFE) credential. The CFE is preferred by businesses and government entities
around the world, and indicates expertise in fraud prevention and detection. CFEs are anti-fraud
experts who have demonstrated knowledge in four critical areas: Financial Transactions and
Fraud Schemes, Law, Investigation, and Fraud Prevention and Deterrence.
Membership
Members of the ACFE include accountants, internal auditors, fraud investigators, law enforcement officers,
lawyers, business leaders, risk/compliance professionals, and educators, all of whom have access to expert
training, educational tools, and resources. Whether their career is focused exclusively on preventing and detecting fraudulent activities or they just want to learn more about fraud, the ACFE provides the essential tools
and resources necessary for anti-fraud professionals to accomplish their objectives.
To learn more, visit ACFE.com or call (800) 245-3321 / +1 (512) 478-9000.
Contact
Association of Certified Fraud Examiners
Global Headquarters
716 West Ave | Austin, TX 78701-2727 | USA
Phone: (800) 245-3321 / +1 (512) 478-9000
ACFE.com | info@ACFE.com
TERMS OF USE:
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are available for use free of charge as a public service of the ACFE. You may download, copy and/or distribute the Materials for
personal or business use on the following conditions:
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2. The Materials must be properly attributed to the ACFE, including the name of the publication. An example of proper attribution
is: “2018 Report to the Nations. Copyright 2018 by the Association of Certified Fraud Examiners, Inc.”
About the ACFE Report to the Nations
79
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