Occupational frauds: who are the victims?

Occupational frauds: who are the victims

In conducting its Report to the Nations 2018 survey, the Association of Certified Fraud Examiners (ACFE) has also investigated the type of organizations that are mostly affected by occupational frauds.

Although no organization is free from the risk of frauds, the typical victim organization is a profit company operating in the private sector. Indeed, the report highlights that approx. 70% of the frauds examined involved profit companies and 42% of these organizations are private companies (against 29% of public companies). Non-profit organizations account for 9%.

The size of an organization can be crucial in a fraud case. As a general rule, big companies are able to allocate greater resources to fraud prevention schemes and to assign duties among the employees so to minimize risks. However, a high number of employees may increase the chance that deceptive people capable of devising complex fraudulent schemes hide among them.

The impact of these frauds in terms of average losses is greater when it comes to small-medium size enterprises (<100 employees). Indeed these are more vulnerable because have a fewer number of fraud prevention systems in place and are exposed to greater risks compared to big organizations.

The report highlights that the average loss for small size enterprises amount to approx. USD 200,000, while companies with more than 100 employees report average losses for approx. USD 104,000.

But how can organizations fight the risk of frauds? First of all by implementing robust and efficient fraud prevention systems as well as efficient pre-emptive detection mechanisms.

Surveys such as the Report to the National 2018 are useful to organizations to understand the most common fraud types and schemes and implement efficient prevention and counter-action instruments.

The industries that are most affected by occupational frauds are the financial services industry, the manufacturing industry and the public sector. The most common fraudulent schemes are: (i) corruption, particularly in the energy, manufacturing and public sectors, (ii) skimming  (taking money from cash receipts) in the arts, entertainment and recreation, food service and hospitality industries, (iii) payroll schemes in the religious, not-for-profit, social and healthcare industries. Interestingly, the fraud cases that affected these sectors tended to involve a crossover between scheme types.

The participants to the ACFE Report to the Nations 2018 survey have received a list of anti-fraud controls to understand which, if any, were present at the victim organization at the time the fraud occurred. The comparison between the losses suffered and the controls in place documents that the presence of anti-fraud controls was correlated with lower fraud losses and a reduction in the duration of the fraud schemes.

Another key fraud prevention action is the attention and care to be used in selecting employees. 52% of the victim organizations ran background checks on their employees before hiring them.  Surprisingly, 10% were alerted to a red flag regarding the perpetrator but chose to hire the person anyway.

It goes without saying that organizations can never afford to lower their guard and must keep an eye open to all signals of conducts that are questionable or on the edge of unlawfulness.