Fraud Risk Management
Organizations cannot afford to be unconcerned about the risk of fraud. Directors and management have a fiduciary obligation and a corporate responsibility to take steps to deter, detect and prevent it. While high profile incidences of fraud have involved gross misstatements of company financial statements, in reality, corporate fraud manifests itself in many different – and often inconspicuous – ways that eat away at the value within a business. And when it does occur, those who have not made the effort to detect and prevent fraud potentially open themselves up to personal liability, significant losses to the bottom line, regulatory censure, reputational damage and a loss of shareholder value.
While the board and senior management have ultimate responsibility for taking steps to deter fraud, everyone within the business has a significant part to play. With the support and contribution of an organization’s employees and the skill and experience of anti-fraud specialists, fraud may never be completely eliminated, but much can be done to reduce the risk.
The Association of Certified Fraud Examiners’ 2012 Report to the Nations on Occupational Fraud and Abuse analyzed data from 94 countries:
- A typical organization loses 5% of its revenues to fraud each year.
- The median loss caused by occupational fraud cases in the study was $140,000.
- The frauds reported lasted a median of 18 months before being detected.
- Asset misappropriation schemes (schemes involving the theft or misuse of an organization’s assets, such as fraudulent invoicing, payroll fraud or skimming revenues) were by far the most common type of occupational fraud, comprising 87% of the cases and a median loss of $120,000.
- Financial statement fraud schemes made up just 8% of the cases in the study, but caused the greatest median loss at $1 million.
- Corruption schemes fell in the middle, occurring in just over one-third of reported cases and causing a median loss of $250,000.
- The presence of anti-fraud controls is notably correlated with significant decreases in the cost and duration of occupational fraud schemes. Victim organizations that had implemented any of 16 common anti-fraud controls experienced considerably lower losses and time-to-detection than organizations lacking these controls.
- Nearly half of victim organizations do not recover any losses that they suffer due to fraud.
How Expensive Is Fraud?