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Question You are the lead social worker working in a parent-and-child… You are the lead social worker working in a parent-and-child advocacy non-profit center.  A parent comes to you to report that her son is failing in school.  He has earned failing grades all year, and now the teacher says that he will likely be retained in the 5th grade.  Mom is convinced that he has learning problems, but the school will not test him, despite mom’s insistence.  What additional information should you gather in order to present this potential case to your agency’s attorney?What case or statutory law  is likely to apply in this case?What would you do next to advise the client?Draft your response in 200/400 words.  You may use any materials used or discussed in weeks 1 through 7. Social Science Psychology Share QuestionEmailCopy link Comments (0)

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Description Discussion 6 - Occupational (Employee) FraudOccupational Fraud and the ACFE Report to the NationsFor this week's discussion, after reading Chapter 14 in the text and understanding the Occupational Fraud Classification Scheme, you will be using the 2020 ACFE Report to the Nations (attached and also available in the ACFE folder). Choose a specific fraud scheme (not a category) from the report and write and post a 1 - 3 paragraph response, selecting a scheme, explaining it, and summarizing key statistics and observations from the report. Choose topics that you find interesting, important, or even surprising to share with your classmates. Other People's Money - Asset Misappropriation 2 attachmentsSlide 1 of 2attachment_1attachment_1attachment_2attachment_2.slider-slide > img { width: 100%; display: block; } .slider-slide > img:focus { margin: auto; } Unformatted Attachment Preview CHAPTER Fraud Against Organizations Albrecht, Fraud Examination, 6th Edition. ©2019 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. After studying this chapter, you should be able to:  Understand the extent to which employees and others commit occupational fraud.  Describe the nature and various types of asset misappropriations.  Discuss the nature and various types of corruption. Albrecht, Fraud Examination, 6th Edition. ©2019 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. CHAPTER 14 2  Occupational fraud and abuse impose enormous costs on an organization.  The median loss caused by occupational frauds in the study was $150,000.  Nearly one-quarter of the cases caused at least $1 million or more in losses.  Participants in the study estimated that organizations lose 5 percent of their annual revenues to fraud. * These statistics about occupational fraud are based on 2,410 fraud cases reported in the ACFE’s 2016 study by Certified Fraud Examiners (CFEs). Albrecht, Fraud Examination, 6th Edition. ©2019 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. CHAPTER 14 3  Occupational fraud schemes can be very difficult to detect.  The median length of the schemes in the study was 18 months from the time the fraud began until it was detected.  Occupational frauds are more likely to be detected by a tip than by other means such as internal audits, external audits, or internal controls.  Whistle-blowers were most likely to report fraud to their direct supervisors or company executives. * These statistics about occupational fraud are based on 2,410 fraud cases reported in the ACFE’s 2016 study by Certified Fraud Examiners (CFEs). Albrecht, Fraud Examination, 6th Edition. ©2019 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. CHAPTER 14 4  Certain anti-fraud controls have a significant impact on an organization’s exposure to fraud.  Anti-fraud controls include internal audit departments, surprise audits, and anti-fraud training for employees and managers.  Victim organizations that had such anti-fraud controls in place had lower losses compared to organizations without antifraud controls in place. * These statistics about occupational fraud are based on 2,410 fraud cases reported in the ACFE’s 2016 study by Certified Fraud Examiners (CFEs). Albrecht, Fraud Examination, 6th Edition. ©2019 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. CHAPTER 14 5  The median loss suffered by small organizations (those with fewer than 100 employees) was the same as that incurred by the largest organizations.  However, this type of loss is likely to have a much greater impact on smaller organizations.  The size of the loss caused by occupational fraud is strongly related to the position of the perpetrator.  For example, frauds committed by owners/executives were more costly when compared to frauds committed by managers. * These statistics about occupational fraud are based on 2,410 fraud cases reported in the ACFE’s 2016 study by Certified Fraud Examiners (CFEs). Albrecht, Fraud Examination, 6th Edition. ©2019 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. CHAPTER 14 6  Employees, vendors, and customers of organizations have three opportunities to steal assets:  Steal receipts of cash and other assets as they are coming into an organization  Steal cash, inventory, and other assets that are on hand  Commit disbursement fraud by having the organization pay for something it shouldn’t pay for or pay too much for something it purchases  With each of these three types of fraud, the perpetrators can act alone or work in collusion with others.  Figure 14.1 outlines the misappropriation possibilities. Albrecht, Fraud Examination, 6th Edition. ©2019 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. CHAPTER 14 7 Albrecht, Fraud Examination, 6th Edition. ©2019 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. CHAPTER 14 8  Thefts of cash  Larceny (intentionally taking away an employer’s cash without the consent and against the will of the employer)  Skimming (the removal of cash from a victim entity prior to its entry in an accounting system)  Fraudulent disbursements  Thefts of inventory and other assets  Misuse  Larceny  Figure 14.2 illustrates the main elements of Wells’s classification scheme. Albrecht, Fraud Examination, 6th Edition. ©2019 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. CHAPTER 14 9 Albrecht, Fraud Examination, 6th Edition. ©2019 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. CHAPTER 14 10  When larceny occurs, cash is stolen by employees or others after the cash is recorded in the company’s accounting system.  As a result, larceny schemes are easier to detect than skimming schemes and are far less common.  Cash larcenies can take place in any circumstance in which an employee has access to cash.  Common larceny schemes involve the theft of cash or currency on hand (in a cash register or petty cash box, for example) or from bank deposits.  Cash larcenies are most successful when they involve relatively small amounts over extended periods of time.  With such thefts, businesses often write the small missing amounts off as “shorts” or “miscounts,” rather than as thefts. Albrecht, Fraud Examination, 6th Edition. ©2019 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. CHAPTER 14 11  Skimming is any scheme in which cash is stolen from an organization before it is recorded on the organization’s books and records.  Basic skimming scheme  Taking money from the sale of goods or services but making no record of the sale  More complicated skimming schemes occur when employees  Understate sales and collections by recording false or larger-than-reality sales discounts  Misappropriate customer payments and write off the receivable as “uncollectible”  Embezzle a first customer’s payment and then credit that customer’s account when a second customer pays (a delayed recognition of payment, called lapping)  Work together with customers to allow them to pay later than required or less than required Albrecht, Fraud Examination, 6th Edition. ©2019 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. CHAPTER 14 12  The ACFE found that fraudulent disbursements comprised by far the highest percentage of asset misappropriations.  It identified six cash schemes involving outgoing disbursements of cash.       Billing schemes Check tampering Expense reimbursements schemes Payroll disbursement schemes Wire transfer schemes Register disbursement schemes  Table 14.1 summarizes these six disbursement schemes. Albrecht, Fraud Examination, 6th Edition. ©2019 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. CHAPTER 14 13 Albrecht, Fraud Examination, 6th Edition. ©2019 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. CHAPTER 14 14  Employee prepares a fraudulent check for his or her own benefit.  Employee intercepts a check intended for another person or entity and converts the check to his or her own benefit. Albrecht, Fraud Examination, 6th Edition. ©2019 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. CHAPTER 14 15  False refunds  False voids Albrecht, Fraud Examination, 6th Edition. ©2019 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. CHAPTER 14 16  Setting up dummy companies (shell companies) to submit invoices to the victim organization  Altering or double-paying a nonaccomplice vendor’s statements  Making personal purchases with company funds Albrecht, Fraud Examination, 6th Edition. ©2019 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. CHAPTER 14 17  Mischaracterizing expenses  Overstating expenses  Submitting fictitious expenses  Submitting the same expenses multiple times Albrecht, Fraud Examination, 6th Edition. ©2019 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. CHAPTER 14 18  Ghost employees  Falsified hours and salary  Commission schemes  False workers’ compensation claims Albrecht, Fraud Examination, 6th Edition. ©2019 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. CHAPTER 14 19  Examples  Tyco scandal  Adelphia scandal Albrecht, Fraud Examination, 6th Edition. ©2019 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. CHAPTER 14 20  A person can misappropriate company assets other than cash in one of two ways.  The asset can be misused (or “borrowed”), or it can be stolen.  Simple misuse is obviously the less egregious of the two types of fraud.  Assets that are misused but not stolen typically include company vehicles, company supplies, computers, and office equipment.  These assets are also used by some employees to conduct personal work on company time. Albrecht, Fraud Examination, 6th Edition. ©2019 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. CHAPTER 14 21  Noncash types of frauds against organizations  Inventory  Information  Securities  Table 14.2 describes the most common noncash types of frauds against organizations. Albrecht, Fraud Examination, 6th Edition. ©2019 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. CHAPTER 14 22 Albrecht, Fraud Examination, 6th Edition. ©2019 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. CHAPTER 14 23  The tradition of “paying off” public officials or company insiders for preferential treatment is rooted in the crudest business systems developed.  Corruption can be broken down into the following four scheme types:  Bribery schemes  Conflict of interest schemes  Economic extortion schemes  Illegal gratuity schemes  Table 14.3 from the 2012 ACFE report summarizes these types of frauds. Albrecht, Fraud Examination, 6th Edition. ©2019 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. CHAPTER 14 24 Albrecht, Fraud Examination, 6th Edition. ©2019 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. CHAPTER 14 25  Bribery involves the offering, giving, receiving, or soliciting of anything of value to influence an official act.  The term “official act” means that traditional bribery statutes only proscribe payments made to influence the decisions of government agents or employees.  Many occupational fraud schemes involve commercial bribery—something of value is offered to influence a business decision rather than an official act of government.  Bribery schemes generally fall into two broad categories:  Kickbacks  Bid-rigging schemes Albrecht, Fraud Examination, 6th Edition. ©2019 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. CHAPTER 14 26  A conflict of interest occurs when an employee, a manager, or an executive has an undisclosed economic or personal interest in a transaction that adversely affects the company.  Conflicts usually involve self-dealing by an employee.  In some cases, the employee’s act benefits a friend or relative, even though the employee receives no financial benefit from the transaction.  To be classified as a conflict of interest scheme, the employee’s interest in a transaction must be undisclosed.  Most conflict schemes fall into one of two categories:  Purchase schemes  Sales schemes Albrecht, Fraud Examination, 6th Edition. ©2019 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. CHAPTER 14 27  Market timing  Late trading Albrecht, Fraud Examination, 6th Edition. ©2019 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. CHAPTER 14 28  Economic extortion is basically the flip side of a bribery scheme.  Instead of a vendor offering a payment to an employee to influence a decision, the employee demands a payment from a vendor in order to make a decision in that vendor’s favor.  In any situation where an employee might accept bribes to favor a particular company or person, the situation could be reversed to a point where the employee extorts money from a potential purchaser or supplier.  Extortion always involves the use of actual or threatened force, fear, or economic duress.  Extortion is a criminal offense, which occurs when a person either obtains money, property, or services from another through coercion or intimidation or threatens one with physical or reputational harm unless he or she is paid money or property. Albrecht, Fraud Examination, 6th Edition. ©2019 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. CHAPTER 14 29  Illegal gratuities are similar to bribery schemes, except that there is not necessarily an intent to influence a particular business decision but rather to reward someone for making a favorable decision.  Illegal gratuities are made after deals are approved. Albrecht, Fraud Examination, 6th Edition. ©2019 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. CHAPTER 14 30 FOREWORD Bruce Dorris, J.D., CFE, CPA President and CEO, Association of Certified Fraud Examiners The 2020 Report to the Nations—the ACFE’s 11th study on the costs and effects of occupational fraud—represents the latest in a series of reports dating back to the first edition published in 1996. Collectively, these studies represent countless hours of work by our staff spent gathering, analyzing, and interpreting the data from thousands of cases of fraud committed against organizations of all types and sizes. We have invested so much time and effort into this research because we recognize two simple truths: (1) occupational fraud imposes tremendous costs upon businesses and government agencies throughout the world; and (2) in order to deal with such a problem, we must first understand it. In the 24 years since it was first published, the Report to the Nations has arguably contributed more to our understanding of occupational fraud than any other source of information. The first Report to the Nation was launched in 1996 by ACFE Founder, Dr. Joseph T. Wells, CFE, CPA, because he recognized that there was a glaring lack of information about occupational fraud. More importantly, he also recognized that the ACFE was uniquely situated to address this problem because we were sitting on what was probably the greatest source of fraud information in the world—the collective knowledge and experiences of the Certified Fraud Examiners who make up our association. Over the years, the ACFE has received a great deal of praise and credit for publishing the Report to the Nations, which is the most widely quoted source of occupational fraud data in the world. But none of this would be possible without the work of thousands of CFEs who have taken the time to share with us very detailed information about the cases they have investigated and the lessons they have learned. I am reminded that this is why we have an association like the ACFE in the first place—so that our members can share information, contribute to the common body of knowledge, and learn from one another. The ACFE is proud to be the conduit helping to broadcast and transmit that information, but make no mistake: It is our members who are the source of every piece of data contained in these pages. This study is a tribute to the important work they do and their willingness to give back to the profession. On behalf of the ACFE and all of the CFEs who have contributed to this study, I am proud to present the 2020 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 Foreword 2 Key Findings 4 Introduction Spotlight: The Global Cost of Fraud How Is Occupational Fraud Committed? Collusion by Multiple Perpetrators 48 Perpetrator’s Criminal Background 48 Perpetrator’s Employment History 49 6 Behavioral Red Flags Displayed by Perpetrators 49 8 Non-Fraud-Related Misconduct by Perpetrators 51 Human Resources-Related Red Flags 51 Spotlight: Behavioral Red Flags of Fraud 52 10 Categories of Occupational Fraud 10 Duration of Fraud Schemes 14 Case Results Velocity of Fraud Schemes 16 Internal Action Taken Against Perpetrator 54 Spotlight: How Occupational Fraud Is Concealed 17 Spotlight: Response to Fraud 55 Reasons for Not Referring Cases to Law Enforcement 56 Recovering Fraud Losses 56 Fines Against Victim Organizations 57 Detection 18 54 Initial Detection of Occupational Fraud 18 Median Loss and Duration by Detection Method 20 Spotlight: Hotline and Reporting Mechanism Effectiveness 21 Methodology Reporting Mechanisms 22 Analysis Methodology 59 Parties to Whom Whistleblowers Report 23 Survey Participants 60 Victim Organizations 24 Regional Focus 58 62 Type of Organization 24 Asia-Pacific 62 Size of Organization 25 Eastern Europe and Western/Central Asia 64 Industry of Organization 26 Latin America and the Caribbean 66 Spotlight: Fraud in Nonprofits 28 Middle East and North Africa 68 Anti-Fraud Controls at Victim Organizations 31 Southern Asia 70 Sub-Saharan Africa 72 United States and Canada 74 Western Europe 76 Spotlight: Internal Control Weaknesses that Contribute to Occupational Fraud Perpetrators 36 38 Perpetrator’s Position 38 Perpetrator’s Tenure 39 Perpetrator’s Department Statistical Appendix 78 40 Index of Figures 82 Perpetrator’s Gender 43 Fraud Prevention Checklist 84 Perpetrator’s Age 45 Perpetrator’s Education Level 46 Glossary of Terminology 86 Spotlight: Profile of a Fraudster 47 About the ACFE 87 Contents Report to the Nations 3 KEY FINDINGS 2,504 cases Causing total losses of more than from $3.6 Billion 125 countries Typical fraud CASE lasts organizations lose 5 causes a loss of 14 months $8,300 before detection % MEDIAN LOSS PER CASE: $125,000 of revenue to FRAUD EACH YEAR AVERAGE LOSS PER CASE: $1,509,000 per month CORRUPTION was the most common scheme in every global REGION Organizations with fraud awareness training for employees were more likely to gather tips through formal reporting mechanisms 56% of tips with training 37% of tips without training 4 CFEs estimate that Key Findings Report to the Nations Asset Misappropriation the schemes are most common and least costly 86% of cases financial statement fraud schemes are the least common and most costly $100,000 10% of cases median loss 43% $954,000 median loss of schemes were detected by tip, and half of those tips came from employees Telephone hotline and email were each used by whistleblowers in 33% of cases Use of targeted anti-fraud controls has increased over last decade Certain fraud risks were more likely in small businesses A lack of internal controls contributed to nearly Hotline than in largE organizations: Anti-fraud policy Fraud training for employees Fraud training for managers/executives 1/3 of frauds The presence of anti-fraud controls is associated with lower fraud losses and quicker detection Owners/executives committed only 20% of occupational frauds, but they caused the largest losses Billing fraud Payroll 2X higher 2X higher Check and payment tampering 4X higher MORE THAN HALF of all occupational frauds came from these four departments: OPERATIONS 15% Owner/Executive $600,000 MALE $150,000 Median loss FEMALE Manager ACCOUNTING 14% Employee EXECUTIVE/UPPER MANAGEMENT 12% $150,000 $85,000 Median loss Men committed 72% $60,000 of all occupational fraud, and also caused larger losses than women SALES 11% 46% 80% of Fraudsters FACED SOME FORM OF INTERNAL DISCIPLINE FROM THE VICTIM ORGANIZATION of victim organizations declined to refer cases to law enforcement because INTERNAL DISCIPLINE WAS SUFFICIENT 42% OF OCCUPATIONAL FRAUDSTERS WERE LIVING BEYOND THEIR MEANS 26% OF OCCUPATIONAL FRAUDSTERS WERE EXPERIENCING FINANCIAL DIFFICULTIES Key Findings Report to the Nations 5 INTRODUCTION This study represents the most comprehensive examination available of the costs, methods, victims, and perpetrators of occupational fraud. The Association of Certified Fraud Examiners is pleased to present the 2020 edition of the Report to the Nations, our 11th study of the impact occupational fraud has on organizations throughout the world. Occupational fraud1—fraud committed by individuals against the organizations that employ them—is among the costliest forms of financial crime in existence. There are more than 3.3 billion people in the global workforce,2 and nearly all of them have access to or control over some portion of their employers’ cash or assets. For the ones who decide to seek illegal gains, their workplace is, in many cases, the most logical and convenient target. While the vast majority of those 3.3 billion people will never abuse the trust placed in them by their employers, the small percentage who do can cause enormous damage. As this report illustrates, that damage could amount to trillions of dollars in losses each year. This study contains an analysis of 2,504 cases of occupational fraud that were investigated between January 2018 and September 2019. This is a tiny fraction of the number of frauds committed each year against millions of businesses, government Occupational fraud is formally 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 2 United Nations Department of Economic and Social Affairs, World Economic Situation and Prospects Monthly Briefing, April 1, 2019. 6 Introduction Report to the Nations 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 organizations, and nonprofits throughout the world. Yet this study represents the most comprehensive examination available of the costs, methods, victims, and perpetrators of occupational fraud. The data presented here was gathered through our 2019 Global Fraud Survey. Each Certified Fraud Examiner (CFE) who took part in the survey was presented with a detailed questionnaire consisting of 77 questions about a specific case of fraud they had investigated. These CFEs provided information on the method of fraud employed, the loss, the victim organization, the perpetrator, the means of detection, and the response by the victim organization after the fraud had been detected. We are deeply indebted to the CFEs who shared their knowledge and experiences to help us prepare this report. The information presented in this study is drawn from cases that occurred in 23 different industry categories. These frauds affected large multinational organizations, small nonprofits, and every size and type of business or government agency in between. The fraudsters in these cases ranged from C-suite executives to entry-level employees. The lesson of this and our previous studies is clear: No organization is immune from occupational fraud, and these crimes can originate from anywhere within the organization. FIG. 1 Reported cases by region United States and Canada CASES: Sub-Saharan Africa 895 (46%) CASES: 301 (15%) Middle East and North Africa Western Europe CASES: Asia-Pacific CASES: 128 (7%) CASES: Latin America and the Caribbean CASES: 101 (5%) 198 (10%) Southern Asia 127 (7%) CASES: 103 (5%) Eastern Europe and Western/Central Asia CASES: 95 (5%) Introduction Report to the Nations 7 The Global Cost of Fraud The cases in our study occurred in 125 countries throughout the world, which also helps underscore the global nature of the threat posed by occupational fraud. Figure 1 on page 7 shows the number and percentage of cases from eight major geographical regions. (Because data in our study was gathered through a survey of CFEs, the number of cases in each region largely reflects the geographical makeup of ACFE membership. It should not be read to indicate that fraud is more or less prevalent in any particular region.) We present this report with the hope that it will be of use to anti-fraud practitioners, organizational leaders, academic researchers, and the public at large. We have compiled a great deal of data about the methods, costs, and indicators of occupational fraud, along with valuable information on how these crimes are detected and how they might be prevented or mitigated. The amount of money lost to occupational fraud each year represents a staggering drain on the global economy. It directly impacts organizations’ abilities to create jobs, produce goods and services, and provide public services. The better we can understand how and why these crimes occur and how to fight them, the better we will be at directing the proceeds of commerce and state action toward the goals for which they were intended, rather than into the pockets of the fraudsters who prey on the system. We hope this study will contribute to the public understanding of these crimes; advance the common body of anti-fraud knowledge; and contribute to improved detection, deterrence, and investigation of occupational fraud. 8 Introduction Report to the Nations The Global Cost of Fraud Fraud is a global problem affecting all organizations worldwide. Because occupational fraud is frequently undetected and often never reported, it is difficult to determine the full scope of global losses. But our data provides insight into the enormity of this issue. 2,504 cases from 125 countries Causing total losses of more than $3.6 Billion AVERAGE LOSS PER CASE: $1,509,000 25TH PERCENTILE LOSS PER CASE $29,000 75TH PERCENTILE $605,000 MEDIAN $125,000 $100,000 $0 $200,000 $300,000 $400,000 $500,000 $600,000 The typical loss varies by region $1,000,000 $1,000,000 $1,000,000 $1,000,000 $800,000 75TH PERCENTILE $713,000 $638,000 $600,000 $568,000 $563,000 MEDIAN $499,000 $400,000 $200,000 $195,000 25TH PERCENTILE $200,000 $133,000 $100,000 $117,000 $100,000 $120,000 $139,000 $38,000 $30,000 $50,000 $33,000 $28,000 $15,000 $22,000 $50,000 Asia-Pacific Eastern Europe and Western/ Central Asia Latin America and the Caribbean Middle East and North Africa Southern Asia Sub-Saharan Africa United States and Canada Western Europe $0 CFEs estimate that 21% OF CASES CAUSED LOSSES OF $1 MILLION+ organizations lose 5 % of revenue to FRAUD EACH YEAR PROJECTED AGAINST 2019 GWP ($90.52 TRILLION), THAT’S MORE THAN $4.5 TRILLION LOST TO FRAUD GLOBALLY EACH YEAR www.imf.org/external/datamapper/NGDPD@WEO/OEMDC/ADVEC/WEOWORLD SOURCE: WWW.IMF.ORG/EXTERNAL/DATAMAPPER/NGDPD@WEO/OEMDC/ADVEC/WEOWORLD Introduction Report to the Nations 9 HOW IS OCCUPATIONAL FRAUD COMMITTED? FIG. 2 How is occupational fraud committed? 86% PERCENT OF CASES Since the inception of the Report to the Nations in 1996, we have analyzed more than 18,000 cases of occupational fraud reported to us by CFEs. In each of the 11 studies we have conducted, we have explored the mechanisms used by perpetrators to defraud their employers. In general, we have found that the schemes used by occupational fraudsters have stayed remarkably consistent. Even with the move toward digital payments and technology-based businesses, the means fraudsters use to acquire their ill-gotten gains stand the test of time. A taxonomy of these schemes is provided in the Occupational Fraud and Abuse Classification System, also called the Fraud Tree (see Figure 3). 43% 10% Asset misappropriation Corruption Financial statement fraud Categories of Occupational Fraud 10 How Is Occupational Fraud Committed? Report to the Nations $100,000 MEDIAN LOSS At the highest level, there are three primary categories of occupational fraud. Asset misappropriation, which involves an employee stealing or misusing the employing organization’s resources, occurs in the vast majority of fraud schemes (86% of cases); however, these schemes also tend to cause the lowest median loss at USD 100,000 per case (see Figure 2). In contrast, financial statement fraud schemes, in which the perpetrator intentionally causes a material misstatement or omission in the organization’s financial statements, are the least common (10% of schemes) but costliest category of occupational fraud. The third category, corruption—which includes offenses such as bribery, conflicts of interest, and extortion—falls in the middle in terms of both frequency and financial damage. These schemes occur in 43% of cases and cause a median loss of USD 200,000. $200,000 $954,000 FIG. 3 Occupational Fraud and Abuse Classification System (the Fraud Tree)3 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 3 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
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