Impact of Recession on Fraud

A Study of the Impact of an Economic Recession 

ACFE report finds direct correlation between economic downswings and fraudulent activity  

Intense financial pressures during the economic crisis led to an increase of fraud, according to a survey of fraud experts conducted by the Association of Certified Fraud Examiners (ACFE). Results of the survey, published in the 2009 ACFE report Occupational Fraud: A Study of the Impact of an Economic Recession, also found that layoffs were pervasive and leave holes in organizations' internal control systems. 
The report, detailed in The Wall Street Journal, was based upon the responses of more than 500 randomly selected Certified Fraud Examiners (CFEs). CFEs are experts in fraud detection, prevention and deterrence, and must pass a rigorous exam as well as meet high professional, educational and ethical standards. 
More than half (55.4%) of respondents said that the level of fraud slightly or significantly increased in the previous 12 months compared to the level of fraud they investigated or observed in years prior. Additionally, about half (49.1%) of respondents cited increased financial pressure as the biggest factor contributing to the increase in fraud, compared to increased opportunity (27.1%) and increased rationalization (23.7%). 

The survey also found that: 

  • Employees pose the greatest fraud threat in a weak economy. When asked which, if any, of several categories of fraud increased during the previous 12 months, the largest number of survey respondents (48%) indicated that embezzlement was on the rise. 
  • Layoffs affect organizations' internal control systems. Nearly 60% of CFEs who worked as in-house fraud examiners reported that their companies had experienced layoffs during the past year. Among those who had experienced layoffs, almost 35% said their company had eliminated some controls, while 44.2% said the layoffs had no effect on controls and only 3.2% said their company had increased controls. 
  • Fraud levels are expected to continue rising. Almost 90% of respondents said they expect fraud to continue to increase during the next 12 months. Additionally, the fraud most expected to increase is embezzlement. 
Download the Report

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