Benchmarking Your In-House Fraud Investigation Team

To address the lack of available benchmarking information for internal fraud investigation departments, the ACFE collected data about our members' internal investigations teams. We analyzed how they're structured, how they performed and how they measured their effectiveness. Here's a small portion of the survey results to whet your appetites.

In an ideal world, an organization's management wouldn't need convincing to invest in anti-fraud initiatives. Anti-fraud teams would use their allocated resources as effectively and efficiently as possible. However, for many companies and agencies, one or both of these areas present challenges. Additionally, organizations often treat fraud investigation teams like any other department — they must justify their expenditures, prove their value and vie with other departments for allocations of financial and human resources.

One of the best ways for any team to measure and report its effectiveness is to benchmark its structure and performance against industry norms. The ACFE has received numerous requests over the years for benchmarking information related to in-house fraud investigation teams. How many people are typically on the team? To whom does the team report? What is each investigator's average caseload? How long does it take teams to turn around a case? What metrics are teams using to assess their effectiveness? Each time we received a request of this nature, we went digging and discovered that no information like this was publicly available. So we decided to tap into the collective knowledge of the ACFE membership and compile it ourselves.

The results of our research are available in our new report, "Benchmarking Your In-House Fraud Investigation Team."

To whet your appetite, here we give a small portion of the survey results.

Methodology

Our survey was open to any ACFE member who works as part of an in-house team that performs fraud examinations for his or her employing organization. We collected survey responses anonymously. We received a total of 1,118 survey responses — 828 of which were usable for purposes of our study. All analyses contained in the report are based on those qualifying responses that provided answers to the relevant survey question(s).

Industry of respondents' organizations

Figure 1 below shows the percentage of respondents by industry. Organizations in banking and financial services were most highly represented, followed by government/public administration and insurance. To help identify specific trends in investigation teams, several analyses in the report are broken down by industry.

Party to which the Investigation team reports

Another key determination in organizing an internal fraud team is deciding who oversees investigations. Figure 2 below shows that investigation teams most commonly report to the head of the internal audit department (in 28.3 percent of organizations). However, the data also suggest that organizations are fairly diverse with regard to who oversees the investigation team.

Time devoted to investigations

We asked respondents what percentage of time their organization's investigators devoted to fraud investigations. The results shown in Figure 3 below suggest that fraud investigators take on various roles at organizations, with 50.9 percent of investigators spending half or less of their time specifically on fraud investigations. Many fraud investigators also have experience in accounting, auditing, and investigating other forms of misconduct — skills they might use to fill multiple roles at their organizations.

Caseload

An important part of establishing a successful fraud investigation team is determining how many active cases each fraud investigator should handle at a time. As reflected in Figure 4 below, the majority of survey respondents indicated that the average caseload per fraud investigator was fewer than five. A relatively low number of organizations (14.8 percent) reported a caseload of 20 or more.

Investigation team results

The basic objectives of a fraud investigation team are to preserve the integrity of the organization and to mitigate losses due to fraud. To ensure its ability to achieve these goals, a team must be able to evaluate its results and look for ways to improve. There are many ways to measure a team's effectiveness. Here are just a few ways that were analyzed as part of our study. (See the full report for additional analyses.)

Time to close a case

Management might want to evaluate an investigation team by the time it takes the team to close fraud cases. Some cases are more complex than others, but knowing the average number of days it takes to close an investigation can serve as a useful benchmark. As shown in Figure 5 below, 59.8 percent of fraud investigation teams take an average of 30 days or less to close a case.

Disciplinary actions

Another way to evaluate the success of investigation teams is to determine what percentage of investigations result in disciplinary action. Of the fraud investigation teams represented in our survey, 54.5 percent reported that fewer than half of their investigations resulted in disciplinary actions. (See Figure 6 below.) However, for a substantial percentage (31 percent) of these teams, more than three-quarters of their fraud cases resulted in disciplinary action. Part of this disparity might be due to the varying effectiveness of fraud investigations, but different rates of external fraud could also play a role (i.e., there might be a lower chance of disciplinary action in external fraud cases).

Referrals for prosecution

We also asked respondents what percentage of their fraud investigations resulted in referrals for prosecution. Figure 7 below shows that most respondents — 71.5 percent — refer 25 percent or less of their cases for prosecution, with 12.5 percent not referring any cases.

An organization has many reasons why it might decide not to prosecute, including lack of evidence to meet criminal evidentiary standards or a desire to maintain confidentiality. However, referring serious crimes for prosecution can prevent the suspect from being placed in a fiduciary position again and can also act as a deterrent for other potential fraudsters. Almost 10 percent of organizations referred more than three-quarters of their fraud cases for prosecution.

Recovery of fraud losses

Substantiating a fraud is one thing, but recovering losses is another. In some cases, organizations find that it wouldn't be worth the effort to pursue a recovery, such as when the fraudster has spent or hidden the ill-gotten gains, which would make a settlement or judgment difficult to enforce. Figure 8 below shows that about 10 percent of organizations recover nothing from fraud investigations, and more than half recover 25 percent or less.

We hope the information contained in this new report will help support your team's effectiveness and highlight its success to your organization's decision makers. If you'd like to see other benchmarking metrics or questions covered in future ACFE benchmarking research, please send your ideas to Research@ACFE.com. Read the full report here.

Andi McNeal, CFE, CPA, is the ACFE's research director. Her email address is: amcneal@ACFE.com.