A single case of occupational fraud costs the victim organization an average of more than $1.5 million, says a new report from the Association of Certified Fraud Examiners (ACFE).
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 month.
A 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.