Solved by verified expert:Professional Research AssignmentComplete the following for this assignment:Review the Association of Certified Fraud Examiners (ACFE) report titled Report to the Nations on Occupational Fraud and Abuse.Develop a PowerPoint Presentation that could be used to educate the leadership team of a company about the profile and behavioral red flags of occupational fraud perpetrators.Please submit your assignment. 6 to 8 slides with speaker notesFor assistance with your assignment, please use your text, Web resources, and all course materials.ReferenceAssociation of Certified Fraud Examiners. (2014). Report to the nations on occupational fraud and abuse: 2014 global fraud study. Retrieved from http://www.acfe.com/rttn/docs/2014-report-to-natio…
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REPORT TO THE NATIONS
O N O C C U PAT I O N A L F R A U D A N D A B U S E
2014 Global Fraud Study
ACFE
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REPORT TO THE NATIONS ON OCCUPATIONAL FRAUD AND ABUSE
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2014 GLOBAL FRAUD STUDY
Letter from the President & CEO
In 1988, Dr. Joseph T. Wells founded the ACFE with a stated
mission to reduce the incidence of fraud and white-collar crime and
to assist members in its detection and deterrence. Not long thereafter, Dr. Wells directed an innovative research study into the costs,
schemes, perpetrators and victims of occupational fraud. Thus,
the ACFE Report to the Nations on Occupational Fraud and Abuse
was born. The first Report, released in 1996, and each of its seven
successors have reinforced the original mission of the ACFE by
expanding the knowledge and understanding of the ways in which
occupational fraud occurs and the financial impact this threat has
on organizations around the world. The combined results of our
research provide the most comprehensive and authoritative body
of research on occupational fraud to date.
The 2014 edition of the Report is based on 1,483 cases of occupational fraud, as reported by the Certified Fraud Examiners (CFEs)
who investigated them. The analysis of these cases provides valuable
lessons about how fraud is committed, how it is detected and how
organizations can reduce their vulnerability to this risk.
On behalf of the ACFE and in honor of its founder, Dr. Wells, I
am proud to present the 2014 Report to the Nations on Occupational
Fraud and Abuse to all businesses, government agencies, anti-fraud
practitioners, academicians, the media and the general public.
We hope that the information contained in this Report is of great
interest and provides an invaluable tool for those who seek to deter,
detect or simply understand the impact of occupational fraud.
James D. Ratley, CFE
President and CEO
Association of Certified Fraud Examiners
2
Report to the Nations on Occupational Fraud and Abuse
The 2014 edition of the Report is based on
1,483 cases of occupational fraud, as reported
by the Certified Fraud Examiners (CFEs) who
investigated them. The analysis of these cases
provides valuable lessons about how fraud is
committed, how it is detected and how
organizations can reduce their vulnerability
to this risk.
Contents
Executive Summary……………………………….4
Perpetrator’s Gender Based on Region……………………………….. 49
Summary of Findings…………………………………………………….. 4
Median Losses Based on Gender……………………………………….. 50
Conclusions and Recommendations…………………………………. 5
Introduction…………………………………………6
The Cost of Occupational Fraud……………..8
Distribution of Losses……………………………………………………. 9
How Occupational Fraud is Committed ���10
Asset Misappropriation Sub-Schemes……………………………… 13
Corruption Cases by Region…………………………………………. 14
Overlap of Fraud Schemes…………………………………………….. 15
Duration of Fraud Schemes…………………………………………… 16
Detection of Fraud Schemes………………….18
Position of Perpetrator Based on Gender…………………………….. 50
Perpetrator’s Tenure …………………………………………………….. 52
Perpetrator’s Education Level…………………………………………. 54
Perpetrator’s Department………………………………………………. 55
Schemes Based on Perpetrator’s Department……………………….. 57
Perpetrator’s Criminal and Employment History………………. 58
Perpetrator’s Criminal Background……………………………………. 58
Perpetrator’s Employment History…………………………………….. 58
Behavioral Red Flags Displayed by Perpetrators………………… 59
Behavioral Red Flags Based on Perpetrator’s Position……………. 60
Behavioral Red Flags Based on Scheme Type……………………….. 61
Behavioral Red Flags Based on Gender………………………………. 62
Non-Fraud-Related Misconduct…………………………………….. 63
Initial Detection of Occupational Frauds………………………… 19
Human-Resources-Related Red Flags……………………………… 63
Median Loss and Median Duration by Detection Method ��� 20
Case Results……………………………………….64
Source of Tips…………………………………………………………….. 21
Impact of Hotlines………………………………………………………. 22
Initial Detection of Frauds in Small Businesses…………………. 23
Detection Method by Region………………………………………… 23
Victim Organizations…………………………..24
Type of Organization…………………………………………………… 24
Size of Organization…………………………………………………….. 25
Methods of Fraud in Small Businesses………………………………… 26
Industry of Organization………………………………………………. 27
Schemes by Industry……………………………………………………….. 29
Corruption Cases by Industry…………………………………………… 30
Anti-Fraud Controls at the Victim Organization………………. 31
Anti-Fraud Controls at Small Businesses…………………………….. 32
Anti-Fraud Controls by Region ………………………………………… 33
Effectiveness of Controls………………………………………………….. 38
Control Weaknesses That Contributed to Fraud………………….. 39
Perpetrators………………………………………..40
Criminal Prosecutions………………………………………………….. 64
Civil Suits………………………………………………………………….. 66
Recovery of Losses……………………………………………………….. 67
Methodology………………………………………68
Analysis Methodology………………………………………………….. 68
Who Provided the Data?………………………………………………. 69
Primary Occupation……………………………………………………….. 69
Experience…………………………………………………………………….. 70
Nature of Fraud Examinations Conducted………………………….. 70
Glossary of Terminology………………………71
Appendix……………………………………………72
Index of Figures…………………………………..74
Fraud Prevention Checklist…………………..76
Perpetrator’s Position……………………………………………………. 40
About the ACFE………………………………….78
Position of Perpetrator Based on Region…………………………….. 42
Membership……………………………………………………………….. 79
The Impact of Collusion……………………………………………….. 46
Certified Fraud Examiners…………………………………………….. 79
Methods of Fraud Based on Number of Perpetrators ……………. 47
Perpetrator’s Age …………………………………………………………. 48
Perpetrator’s Gender…………………………………………………….. 49
Report to the Nations on Occupational Fraud and Abuse
3
Executive Summary
Summary of Findings
• Survey participants estimated that the typical organization loses 5% of revenues each year to fraud. If
applied to the 2013 estimated Gross World Product, this translates to a potential projected global
fraud loss of nearly $3.7 trillion.
• The median loss caused by the frauds in our study
was $145,000. Additionally, 22% of the cases
involved losses of at least $1 million.
• The median duration — the amount of time from
when the fraud commenced until it was detected —
for the fraud cases reported to us was 18 months.
• Occupational frauds can be classified into three
primary categories: asset misappropriations, corruption and financial statement fraud. Of these, asset
misappropriations are the most common, occurring
in 85% of the cases in our study, as well as the least
costly, causing a median loss of $130,000. In contrast, only 9% of cases involved financial statement
fraud, but those cases had the greatest financial impact, with a median loss of $1 million. Corruption
schemes fell in the middle in terms of both frequency (37% of cases) and median loss ($200,000).
• Many cases involve more than one category of
occupational fraud. Approximately 30% of the
schemes in our study included two or more of the
three primary forms of occupational fraud.
• Tips are consistently and by far the most common
detection method. Over 40% of all cases were detected by a tip — more than twice the rate of any other
detection method. Employees accounted for nearly
half of all tips that led to the discovery of fraud.
• Organizations with hotlines were much more likely
to catch fraud by a tip, which our data shows is the
most effective way to detect fraud. These organizations also experienced frauds that were 41% less
costly, and they detected frauds 50% more quickly.
• The smallest organizations tend to suffer disproportionately large losses due to occupational fraud.
Additionally, the specific fraud risks faced by small
businesses differ from those faced by larger organizations, with certain categories of fraud being
4
REPORT TO THE NATIONS ON OCCUPATIONAL FRAUD AND ABUSE
The median loss caused by the frauds in our
study was $145,000, and 22% of the cases
involved losses of at least $1 million.
much more prominent at small entities than at
their larger counterparts.
• The banking and financial services, government
and public administration, and manufacturing
industries continue to have the greatest number of
cases reported in our research, while the mining,
real estate, and oil and gas industries had the
largest reported median losses.
• The presence of anti-fraud controls is associated with reduced fraud losses and shorter fraud
duration. Fraud schemes that occurred at victim
organizations that had implemented any of several
common anti-fraud controls were significantly less
costly and were detected much more quickly than
frauds at organizations lacking these controls.
• The higher the perpetrator’s level of authority, the
greater fraud losses tend to be. Owners/executives
only accounted for 19% of all cases, but they
caused a median loss of $500,000. Employees,
conversely, committed 42% of occupational frauds
but only caused a median loss of $75,000. Managers ranked in the middle, committing 36% of
frauds with a median loss of $130,000.
• Collusion helps employees evade independent
checks and other anti-fraud controls, enabling them
to steal larger amounts. The median loss in a fraud
committed by a single person was $80,000, but as
the number of perpetrators increased, losses rose
dramatically. In cases with two perpetrators the
median loss was $200,000, for three perpetrators it
was $355,000 and when four or more perpetrators
were involved the median loss exceeded $500,000.
• Approximately 77% of the frauds in our study
were committed by individuals working in one of
seven departments: accounting, operations, sales,
executive/upper management, customer service,
purchasing and finance.
• It takes time and effort to recover the money
stolen by perpetrators, and many organizations are
never able to fully do so. At the time of our survey,
58% of the victim organizations had not recovered
any of their losses due to fraud, and only 14% had
made a full recovery.
Conclusions and Recommendations
• Occupational fraud is a universal problem for
businesses around the globe. Although some slight
regional variations were noted in methods used
both by fraudsters to commit their crimes and by
organizations to prevent and detect fraud schemes,
the overall trends in our data are quite consistent,
both across borders and over time. This consistency underscores the nature and pervasiveness of
fraud’s threat to all organizations.
• The longer frauds last, the more financial damage
they cause. Passive detection methods (confession,
notification by law enforcement, external audit
and by accident) tend to take longer to bring fraud
to management’s attention, which allows the related loss to grow. Consequently, proactive detection
measures — such as hotlines, management review
procedures, internal audits and employee monitoring mechanisms — are vital in catching frauds
early and limiting their losses.
• Small businesses are both disproportionately
victimized by fraud and notably under-protected
by anti-fraud controls, a combination that makes
them significantly vulnerable to this threat.
While resources available for fraud prevention
and detection measures are limited in many small
companies, several anti-fraud controls — such as
an anti-fraud policy, formal management review
procedures and anti-fraud training for staff members — can be enacted with little direct financial
outlay and thus provide a cost-effective investment
for protecting these organizations from fraud.
• External audits are implemented by a large
number of organizations, but they are among the
least effective controls in combating occupational
fraud. Such audits were the primary detection
method in just 3% of the fraud cases reported to
us, compared to the 7% of cases that were detected
by accident. Further, although the use of independent financial statement audits was associated
with reduced median losses and durations of fraud
schemes, these reductions were among the smallest
of all of the anti-fraud controls analyzed in our
study. Consequently, while independent audits
serve a vital role in organizational governance, our
data indicates that they should not be relied upon
as organizations’ primary anti-fraud mechanism.
• Many of the most effective anti-fraud controls are
being overlooked by a significant portion of organizations. For example, proactive data monitoring
and analysis was used by only 35% of the victim
organizations in our study, but the presence of this
control was correlated with frauds that were 60%
less costly and 50% shorter in duration. Other less
common controls — including surprise audits, a
dedicated fraud department or team and formal
fraud risk assessments — showed similar associations with reductions in one or both of these measures of fraud damage. When determining how
to invest anti-fraud dollars, management should
consider the observed effectiveness of specific control activities and how those controls will enhance
potential fraudsters’ perception of detection.
• The vast majority of occupational fraudsters are
first-time offenders; only 5% had been convicted
of a fraud-related offense prior to committing the
crimes in our study. Furthermore, 82% of fraudsters had never previously been punished or terminated by an employer for fraud-related conduct.
While background checks can be useful in screening out some bad applicants, they might not do a
good job of predicting fraudulent behavior. Most
fraudsters work for their employers for years before
they begin to steal, so ongoing employee monitoring and an understanding of the risk factors and
warning signs of fraud are much more likely to
identify fraud than pre-employment screening.
• Most occupational fraudsters exhibit certain
behavioral traits that can be warning signs of
their crimes, such as living beyond their means or
having unusually close associations with vendors
or customers. In 92% of the cases we reviewed, at
least one common behavioral red flag was identified before the fraud was detected. Managers,
employees, auditors and others should be trained
to recognize these warning signs that, when combined with other factors, might indicate fraud.
Report to the Nations on Occupational Fraud and Abuse
5
Introduction
Fraud is ubiquitous; it does not discriminate in its occurrence. And while anti-fraud controls can effectively
reduce the likelihood and potential impact of fraud, the
truth is that no entity is immune to this threat. Unfortunately, however, many organizations still suffer from an
“it can’t happen here” mindset. To help combat this misconception, to raise public awareness about the cost and
universal nature of fraud and to support anti-fraud professionals around the globe, we have undertaken extensive research into the costs and trends related to fraud.
The results of our initial research efforts were contained
in the inaugural Report to the Nation on Occupational
Fraud and Abuse, which was released in 1996; since then
we have continued and expanded our research, with
subsequent reports released biennially since 2002.
Although the types of fraud that affect organizations vary widely,
the research contained in this Report and its predecessors focuses on
a particularly pervasive form: occupational fraud, which is defined as:
The use of one’s occupation for personal enrichment through the
deliberate misuse or misapplication of the employing organization’s
resources or assets
Put more simply, occupational frauds are those schemes in which
a person defrauds his or her employing organization. By its very
nature, this form of fraud is a threat to all organizations that employ
individuals to perform their business functions.
To explore and illuminate this risk, each of our Reports has been
based on detailed information about specific cases of occupational
fraud that were investigated by Certified Fraud Examiners (CFEs),
and we undertook all Reports with the same goals:
• To summarize the opinions of experts on the percentage of
organizational revenue lost to fraud each year
Fraud is ubiquitous; it does not
discriminate in its occurrence. And while
anti-fraud controls can effectively reduce
the likelihood and potential impact of
fraud, the truth is that no entity is
immune to this threat.
• To categorize the ways in which occupational fraud and abuse
occur
• To analyze the characteristics of the individuals who commit occupational fraud and abuse
• To examine the characteristics of the organizations that are victimized by occupational fraud and abuse
6
Report to the Nations on Occupational Fraud and Abuse
In furtherance of these goals, the 2014 Report contains an analysis of 1,483 cases of occupational fraud that occurred in more than 100 countries. Figure 1 illustrates the regional breakdown of those cases for which the
location of the victim organization was identified, as well as the corresponding median losses for the cases in
each region.1
Figure 1: Geographical Location of Victim Organizations
Region
Number of Cases
Percent of Cases
Median Loss
(in U.S. dollars)
United States
646
48.0%
$100,000
Sub-Saharan Africa
173
12.8%
$120,000
Asia-Pacific
129
9.6%
$240,000
Western Europe
98
7.3%
$200,000
Eastern Europe and Western/Central Asia
78
5.8%
$383,000
Canada
58
4.3%
$250,000
Latin America and the Caribbean
57
4.2%
$200,000
Southern Asia
55
4.1%
$56,000
Middle East and North Africa
53
3.9%
$248,000
Throughout this Report, we note several regional variances in the characteristics of occupational fraud schemes.
Nonetheless, the overall uniformity of our findings over time continues to be striking. We have found that there
are consistent patterns in how these crimes are committed, how they are detected, who commits them and who
suffers from them. These observations underscore the value of our research and reinforce our mission to continue
educating anti-fraud professionals …
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