Organizations face numerous risks to their success every day including regulatory risk, economic risk, disaster risk, supply-chain risk, and technology risk, just to name a few. Fraud risk is universally one of the risks faced by all businesses, from individually-owned to government entities and every type of business in between. Unfortunately for many organizations, their greatest assets are endangered by their own employees. Those who have been hired to help the organization succeed are potentially the biggest threats to a company. For the past nine years, the Association of Certified Fraud Examiners has studied occupational fraud, the victims, and various methods used to commit these crimes. Between January 2014 and October 2015, 2,410 cases of occupational fraud were investigated in 114 different countries throughout the world. Highlights of the findings include:
- The total loss caused by the cases in the study exceeded $6.3 billion, with an average loss per case of $2.7 million.
- Asset misappropriation was by far the most common form of occupational fraud, occurring in more than 83% of cases, but causing the smallest median loss of $125,000. Financial statement fraud was on the other end of the spectrum, occurring in less than 10% of cases but causing a median loss of $975,000. Corruption cases fell in the middle, with 35.4% of cases and a median loss of $200,000.
- Among the various forms of asset misappropriation, billing schemes and check tampering schemes posed the greatest risk based on their relative frequency and median loss.
- The median loss for all cases in the study was $150,000, with 23.2% of cases causing losses of $1 million or more.
Tips were the most common detection method in the study, representing 39.1% of cases. Organizations that had reporting hotlines were much more likely to detect fraud through tips than organizations without hotlines (47.3% compared to 28.2%, respectively). Having a hotline in place allows for employers to address a situation early rather than letting it continue and end in the courts. A hotline also eliminates the employee excuse that they had nowhere to turn. We believe that organizations should make it easy for their employees to report suspected fraudulent activity/theft, misconduct, or unethical behavior. Operating an effective fraud tip function is neither too complicated nor overly expensive. Dean Dorton can provide a safe, secure, and anonymous way to report these concerns 24/7 through our secure fraud hotline service, Red Flag Reporting. By putting this hotline in place, you will convey to your employees that your organization is committed to an ethical culture. As an employer, you will have comfort in that the hotline provides you with a safeguard that may identify employee concerns or complaints before they develop into a crisis situation. Utilizing a third-party expert provider provides your employees with comfort that their concerns will be handled in a confidential and anonymous manner.