The anatomy of fraud

While asset misappropriation was found to occur more frequently than other frauds, it resulted in the lowest median loss. In contrast, financial statement fraud occurred less frequently but resulted in the greatest loss. Corruption crimes fell in the middle in terms of frequency and financial cost.

Detection was one of the most important keys to fraud prevention.

Frauds were mostly uncovered by tips from employees. Organisations with hotlines detected fraud sooner and suffered lower losses.

The offender’s level of authority tended to correlate with the magnitude and length of the crime, while the financial damage was correlated to the perpetrator’s length of employment with the entity.

While committing fraud, perpetrators often exhibited red flags. The most common were living beyond means; financial diffculties; unusually close association with a vendor/customer; control issues/ unwillingness to share duties.

Lack of internal controls contributed to almost one-third of frauds. The presence of anti-fraud controls resulted in lower losses and faster detection. It is important to note that annual financial statements audits are not designed to detect fraud. An organisation’s management is responsible for the design, implementation, and maintenance of internal controls to prevent and detect fraud.

The coronavirus pandemic has introduced many challenges, including changes in business volume and activities, and shifting of a large percentage of the workforce to remote work. This new environment requires organisations to reevaluate internal controls, policies, procedures, and fraud risks.

2020 “Report to the Nations”, Copyright 2020 by the Association of Certified Fraud Examiners, Inc.

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