Fraud in focus: Identifying risks in your organization

Did you know that organizations lose an estimated 5% of all revenue to fraud each year? According to the Association of Certified Fraud Examiners (ACFE), that translates to a global loss of $4.5 trillion.

In its 2024 Report to the Nations, the ACFE analyzed 1,921 occupational fraud cases from 138 countries and territories, finding $3.1 billion in losses. Fraud remains a serious — and costly — problem for businesses and consumers alike.

What does occupational fraud look like?

Fraud can take many forms, such as identity theft, credit card fraud, phishing, invoice fraud, payroll fraud or asset misappropriation. Fraudsters use various techniques and tools to deceive their victims and exploit their vulnerabilities.

The most common cases of fraud are asset misappropriation schemes, involving employees stealing or misusing their employers’ resources. These account for 89% of the cases investigated by the ACFE. While prevalent, these cases also tend to cause the least damage, with a median loss of around $120,000 per case.

Much less common but much more costly, financial statement fraud comprised only 5% of cases, yet caused a median loss of $766,000 per case.

A matter of time

One of the key challenges in combating fraud is detecting it in a timely manner. The longer fraud goes undetected, the more damage it can cause to the organization and its stakeholders.

The ACFE reports that the median duration of a fraud scheme is 14 months and the median loss is $8,300 per month. However, these figures vary depending on the type and size of the fraud. For instance, financial statement fraud, which involves falsifying or manipulating the financial records of an organization, has the longest median duration of 24 months and the highest median loss of $954,000.

On the other hand, corruption, which involves the abuse of power or influence for personal gain, has the shortest median duration of 10 months and the lowest median loss of $200,000.

Fighting fraud

The ACFE also found that the duration and loss of a fraud scheme are inversely related to the presence of antifraud controls. Antifraud controls are policies, procedures and systems that aim to prevent, deter and detect fraud within an organization.

Examples of antifraud controls include internal audits, external audits, codes of conduct, whistleblower hotlines, fraud training, surprise audits, data monitoring and segregation of duties. The ACFE analyzed the impact of 18 different types of antifraud controls on the duration and loss of fraud schemes and discovered that the presence of any of these controls was associated with lower fraud losses and quicker detection.

Specifically, the ACFE reported that the following antifraud controls had the most significant impact on reducing the duration and loss of fraud schemes:

• Data monitoring: This control involves the use of software or other tools to analyze and review data for anomalies, trends, patterns or indicators of fraud. Data monitoring can help identify fraud risks, flag suspicious transactions or trigger alerts or notifications. The ACFE found that data monitoring reduced the median duration of fraud schemes by 58% (from 24 months to 10 months) and the median loss by 52% (from $200,000 to $96,000).
• Surprise audits: This control involves performing unannounced or random audits of an organization’s financial records, processes or operations. Surprise audits can deter fraudsters from committing fraud, as they increase the perceived risk of detection and punishment. They can also help uncover fraud schemes that might otherwise go unnoticed. The ACFE found that surprise audits reduced the median duration of fraud schemes by 50% (from 24 months to 12 months) and the median loss by 51% (from $200,000 to $98,000).
• Fraud training for managers and executives: This control involves providing education and awareness to the senior leaders of an organization on the nature, causes, consequences and prevention of fraud. Fraud training for managers and executives can help create a culture of honesty and integrity and enhance the organization’s oversight and accountability. The ACFE found that fraud training for managers and executives reduced the median duration of fraud schemes by 50% (from 24 months to 12 months) and the median loss by 50% (from $200,000 to $100,000).
• Fraud training for employees: This control involves providing education and awareness to the staff members of an organization on the nature, causes, consequences and prevention of fraud. Fraud training for employees can help increase their knowledge and skills in detecting and reporting fraud and empower them to speak up if they witness or suspect fraud. The ACFE found that fraud training for employees reduced the median duration of fraud schemes by 44% (from 18 months to 10 months) and the median loss by 42% (from $150,000 to $87,000).

The ACFE also reported that the absence of antifraud controls was associated with higher fraud losses and longer detection times. It found that the median duration of fraud schemes without any antifraud controls was 49 months, and the median loss was $849,000. However, if the fraud scheme lasted more than 60 months, the median loss would increase to $875,000.

The ACFE’s findings highlight the importance and effectiveness of implementing antifraud controls within an organization. Antifraud controls can not only save money and time but also protect the reputation and trust of the organization and its stakeholders. Therefore, organizations should invest in developing, maintaining and enhancing their antifraud controls and monitor and evaluate their performance and impact. By doing so, organizations can reduce their fraud risk, increase their fraud resilience and improve their fraud response.

How Wipfli can help

Fraud can be costly, or even fatal, to your business, and fighting it requires vigilance and experience. With a trusted advisor like Wipfli to help identify risks and help you implement antifraud best practices, you can be confident not only that any potential problems can be addressed and mitigated but also that issues can be identified before they have a chance to cause harm. Contact us today and see how our fraud and forensic team can assist you in the fight against fraud.