Fraud Study – 2018 Report

The latest report on occupational fraud and abuse has been released by the Association of Certified Fraud Examiners.  This report is the 10th edition of “Report to the Nations” and the largest, most extensive resource about fraud.  The study participants reported on frauds that occurred between January 2016 and October 2017 in 125 countries across 23 industries.  A total of 2,690 cases were reported in the study.  These cases covered fraud that was perpetrated against small local businesses, large national companies and giant multinational corporations.  The report explains the 3 major categories of fraud (asset misappropriation, corruption and financial statement fraud), as well as the schemes within each category.  It also examines the cost of fraud, how fraud is related to the size and environment of a company, and how fraud is detected.

More than 2,000 anti-fraud professionals participated in the 2018 report.  The total cost of fraud in the cases that were studied was more than $7 billion.  While that cost is astounding, it is likely even higher.  Other frauds committed against the companies in these 2,690 cases may not have been uncovered.  Thus, the true loss from occupational fraud and abuse can never be known with certainty. 

Most of the cases in the report involved asset misappropriation, followed by corruption and financial statement fraud.  The data showed that while asset misappropriation was the culprit in most of the cases, it resulted in the lowest median loss.  Financial statement fraud was to blame in the least number of cases but resulted in the highest median loss. The study found that small companies with less than 100 employees suffered higher median losses than companies with 100 employees or more.  The frauds against these small companies were often caused by poor internal controls, probably because smaller companies have fewer resources to dedicate to fraud prevention and detection. 

In both the 2016 and 2018 studies, the data revealed that:

  • The estimated loss from fraud for the typical organization is 5% of annual revenue.
  • The presence of anti-fraud controls has a direct correlation to the rate of detection and the amount of the loss.
  • The perpetrator’s level of authority was strongly tied to the size of the fraud.
  • The conspiracy of two or more people resulted in higher median losses.
  • Most occupational fraud originates in the accounting department.
  • The most common organizational weaknesses are related to lack of or poor internal controls.
  • Fraud perpetrators usually display changes in behavior as they are committing fraud, including living beyond their means, having financial difficulty and having close ties to vendors, customers or employees.

Similarly, both studies concluded that most fraud is uncovered by tips from employees, customers, vendors and others.  Fraud is also commonly identified by internal audit, management review, external audit, surveillance and internal controls. 

For more information about how to prevent and detect fraud, go to https://www.acfe.com/report-to-the-nations/2018/ and select “Get the Report.”