According to a new report from the Association of
Certified Fraud Examiners (ACFE), a single case of occupational fraud costs the
victim organization an average of more than $1.5 million, and Certified Fraud
Examiners (CFEs) estimate that organizations lose 5% of their revenues each
year to fraud. In the ACFE’s 2020 Report to the Nations, a study of 2,504
cases of occupational fraud investigated by CFEs in 125 countries, the typical fraud
lasted 14 months before it was detected and caused a median loss of $8,300 a
One key finding in the report is an emerging trend of
organizations favoring civil litigation and internal punishment over referring
their fraud cases to law enforcement. Organizations opting for civil litigation
increased to 28% in 2020 from the average of 23% for the past decade. Similarly,
referrals to law enforcement have dropped from 69% in 2008 to 59% in 2020. “We
have seen more organizations focusing on internal discipline and civil
litigation instead of seeking criminal prosecutions,” said John Warren, J.D.,
CFE, Vice President and General Counsel of the ACFE, and one of the co-authors
of the report.
When asked why the cases weren’t referred to law
enforcement, 46% of respondents said the organization felt internal discipline
was sufficient — a sentiment that has increased from an average of 33% in
the past years. Private settlements as a reason to decline criminal referrals
has also increased from 21% to 27%.
An encouraging trend has been the increase in anti-fraud
controls. The implementation rates of both hotlines and established anti-fraud
policies have gone up 13% over the past decade. Targeted anti-fraud training for
employees and company leadership has also increased. “We see more recognition
of fraud risks in many organizations than we saw 10 years ago,” said Warren. Tips
remain the most common way for fraud to be detected, accounting for 43% of
cases, but the ways in which whistleblowers report their concerns is shifting. Tips
are increasingly coming in through web-based forms (32%) and email (33%), while
the use of telephone hotlines has dropped from 40% to 33% since 2016.
Other findings include that check
and payment tampering was four times more likely to occur in organizations with
100 or fewer employees. Small businesses were also two times more likely to experience
billing and payroll fraud. While financial statement fraud accounted for the
least number of cases, it was the costliest form of fraud studied, with a
median loss of $954,000 per instance.
The 2020 Report to
the Nations is available for download online at ACFE.com/RTTN.
The first Report to
the Nation was published by the ACFE in 1996. The ACFE has published
subsequent editions every two years since 2002. In its now 11th
edition, the report has come to be regarded as the most authoritative
statistical resource available on occupational fraud.