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Occupational Fraud Findings and Increased Threats Due to Economic Hardship from the COVID-19 Pandemic

11.12.2020

The presence of three components that are generally present for occupational fraud to occur may rise in periods of economic hardship (such as a global pandemic), according to the Association of Certified Fraud Examiners (ACFE). These components – pressure, opportunity and rationalization – can be exacerbated during this time because of reduced hours and/or pay, furloughs, layoffs, lower household incomes, and other personal and professional stressors.

Occupational fraud poses a threat to all organizations. The biannual Report to the Nations released by the ACFE for 2020 is a reminder to organizations of all types and sizes that being proactive in preventing fraud is important. The 2020 report reveals important information about occupational fraud including the cost of fraud, fraud schemes, how fraud is committed and detected, red flags and the characteristics of the people who commit fraud, and the impact on victim organizations.

Key findings from the 2020 Report to the Nations include:

  • It is estimated that organizations lose 5 percent of revenue to fraud each year.
  • The typical fraud case lasts 14 months and, on average, results in losses of $8,300 per month.
  • Asset misappropriation (when an employee steals or misuses the employing organization’s resources) was the most common, but least costly, form of occupational fraud, occurring in 86 percent of cases with a median loss of $100,000.
  • Corruption (including offenses such as bribery, conflicts of interest and extortion) occurred in 43 percent of cases and had a median loss of $200,000.
  • Financial statement fraud schemes were the least common, but most costly form of occupational fraud, occurring in 10 percent of cases with a median loss of $954,000.
  • The leading methods of detection of occupational fraud were tips (43 percent), internal audit (15 percent) and management reviews (13 percent).
  • Lack of internal controls contributed to nearly one third of fraud cases.
  • Organizations that implement anti-fraud controls realized lower fraud losses and quicker detection. Four anti-fraud controls were associated with a 50 percent or greater reduction of fraud loss and duration:
    • Code of conduct.
    • Existence of an internal audit department.
    • Management’s certification of financial statements.
    • Regular management review of internal controls, processes, accounts or transactions
  • Organizations employing active fraud detection methods (document examination, surveillance/monitoring, IT controls, internal audit and others) suffered from a lower median loss from fraud.

For more details on the findings, download a copy of the ACFE report here. To learn more about fraud in the wake of COVID-19, read the ACFE’s Benchmarking Report.

To discuss fraud prevention and detection or how to establish a fraud risk management program in your organization, contact Forensic Services Partner Ron Steinkamp at rsteinkamp@bswllc.com or 314.983.1238 or Forensic Services Principal Jason Buhlinger at jbuhlinger@bswllc.com or 314.983.1310.

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