Fraud Statistics In this chapter, we draw heavily (with permission) from Joseph Wells’s book Occupational Fraud and Abuse, as well as two surveys from the fraud literature:

(1) the 2016 ACFE Report to the Nation on Occupational Fraud & Abuse and

(2) KPMG’s 2013 Integrity Survey.*

The 2016 ACFE Report to the Nation on Occupational Fraud & Abuse covers three types of fraud against organizations:

(1) asset misappropriation —any scheme that involves the theft or misuse of an organization’s assets;
(2) corruption —any scheme in which a person uses his or her influence in a business transaction to obtain an unauthorized benefit contrary to that person’s duty to his or her employer; and
(3) fraudulent statements —fabrication of an organization’s financial statements to make the company appear more or less profitable.

The following statistics about occupational fraud are based on 2,410 fraud cases reported in the ACFE’s 2016 study by Certified Fraud Examiners (CFEs):

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.

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.

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 anti-fraud controls in place.

Whistle-blowers were most likely to report fraud to their direct supervisors or company executives.

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.

The KPMG 2013 Integrity Survey, which was based on responses from more than 3,500 U.S. employees, found similar results. For example, it found that nearly three out of four employees reported that they had observed misconduct in the prior 12-month period, with more than half of these employees reporting that they had observed serious misconduct that could cause “a significant loss of public trust if discovered.” KPMG also found that fraud against organizations was significantly reduced when proactive anti-fraud measures, such as hotlines and ethics training, were implemented. The survey also found that one of the most common rationalizations for misconduct is a “whatever it takes” attitude to meet strategic goals and objectives.

QUESTION
Look at the various fraud statistics above. Determine the characteristics of the person most likely to perpetrate a large fraud. Then, debate your decision over a person with these characteristics and give the reasons why such a person is more likely to be a fraud perpetrator than a person with different characteristics.