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Detecting Occupational Fraud

Occupational frauds are estimated to last a median of 18 months before being detected.  That and other findings are reported in the Association of Certified Fraud Examiners (“ACFE”) 2012 Report to the Nations on Occupational Fraud and Abuse, based upon the organization’s global survey (“2012 Survey”).  This article highlights the information provided in the 2012 Survey, which may be helpful to companies seeking to identify and limit fraud.

Do Perpetrators Have Common Traits?

The results of the ACFE surveys tend to be consistent from year to year with respect to the demographics of fraud perpetrators.  According to the ACFE, the information may be helpful in assessing relative levels of risk in an organization and flagging traits or behaviors that might be consistent with fraudulent conduct. The 2012 Survey found that the following behaviors are characteristic of actual or potential fraudsters:  live beyond their means (36% of cases), have financial difficulties (27%), have an unusually close relationship with vendors or customers (19%), and have excessive control issues (18%).

The chart below highlights the demographics of perpetrators of occupational fraud according to the 2012 Survey.

Fraud Demographics 

42% were rank and file employees, 38% were managers and 18% were owners or executives.

The median loss of the fraud increased with the level of responsibility of the perpetrator:

• $573,000 by owners or executives
• $182,000 by managers, and
• $60,000 by other employees.

The median length of the fraud increased with the level of authority of the perpetrator:

• 24 month duration for managers and owner/executives
• 12 month duration for other employees

Approximately 54% of all fraudsters were between the ages of 31 and 45.  Fraud losses tended to rise with the age of the perpetrator; while only 3% of frauds were perpetrated by individuals over 60 years of age, the median loss from that demographic was $974,000 (approximately 4 times the total median loss in any other age range).

The median fraud committed by a man was more than twice that of a woman; $200,000 and $91,000, respectively.

What Measures Can Be Implemented to Detect and Prevent Fraud?

43% of fraud is discovered through tips; the majority of which come from employees of the victim organization. Companies, and their advisors, should contemplate the implementation of an anti-fraud program. Companies that have such programs in place experience lower losses, and frauds of a shorter duration than organizations without such a program.  Such programs should include a mechanism for individuals to report suspicious activity that allows for anonymity and confidentiality.

Staff should be educated as to what constitutes fraud, how fraud harms everyone in the company, and how to report suspicious activity.

Assistance

The nature and the amount of the fraud can be quantified with the help of a forensic accountant.  The Gettry Marcus team is experienced and well trained in the area of fraud investigations. Senior team members have extensive knowledge of computerized data mining techniques and other fraud detection methods.  Members of the Group have attained the following designations: Certified in Financial Forensics (CFF), Certified Fraud Examiner (CFE), Master Analyst in Financial Forensics (MAFF) and Diplomat of the American Board of Forensic Accounting (DABFA). In addition, we have published articles in peer reviewed national journals on the topics of fraud investigations and forensic accounting, and were a contributing author to Financial Forensics Body of Knowledge, a comprehensive guide for forensic accounting, published by Wiley in 2012.

For more information please contact a member of our Forensic Accounting & Litigation Services Group.