In 2018, the Association of Certified Fraud Examiners (ACFE) released their 2018 Report to the Nations, based on the ACFE 2017 Global Fraud Survey, a survey conducted by the ACFE of its members from July 2017 through October 2017. As part of this survey, members were asked to provide information on the largest fraud case they were involved in from January 2016 through the survey date. The information from this survey was compiled into a variety of statistics to gain an understanding of the impact that occupational fraud and abuse has on businesses.
The survey and results are published by the ACFE every two years and provide valuable insights into fraud in the United States and internationally. The report defines occupational fraud and abuse as: "the use of one’s occupation for personal enrichment through the deliberate misuse or misapplication of the employing organization’s resources or assets." This is a broad definition meant to encompass a wide variety of cases and is intended to be as comprehensive as possible.
According to the results of the survey, the top five methods of detection are:
- Internal audit
- Management review
It is no surprise that a tip is the number one method of detection. Past survey results have consistently demonstrated tips are the most effective fraud detection method, and this year a tip was the lead detection method in 40% of the cases noted in the survey. In fact, the next most frequent method of detection, internal audit, only accounted for 15% of the cases in the survey. What is especially surprising is the fourth most common detection method, an accident. The discovery of fraud by accident demonstrates some companies are not as proactive or effective in their fraud detection efforts.
With this knowledge, what can you do to increase your ability to detect fraud and not fall into the category of discovering fraud by accident? Based on the survey results, the best thing to do is implement a method to receive tips, i.e. a hotline. Hotlines allow employees, vendors, or customers to report things they think are suspicious or unethical. Many hotlines are anonymous, but that is not a requirement, and when implemented, complaints logged in this hotline should go to an appropriate member of the board or ownership rather than management. This allows employees the chance to not only provide information about things they note with coworkers, but also management of a company. Implementing the hotline is not a set-it-and-forget-it action. You also need follow up. For tips received, individuals involved in the hotline need the ability and authority to follow through with investigating the tip. Follow up on tips is crucial, from an investigation to any action that is needed based on the investigation.
No fraud detection program is 100% effective, but by paying attention to the common detection methods and exploring what methods of detection methods work best for your company, you can help reduce your overall exposure to occupational fraud and abuse. If you want to know more about the survey and report, or if you want to discuss what you can do to develop a more robust prevention and detection program, contact one of Boulay’s fraud experts at 952.893.9320 or learnmore@BoulayGroup.com.
File Download: The Number 1 Effective Fraud Detection Method