Fraud is a serious problem!
Organizations lose 5% of their revenue to fraud each year, according to Occupational Fraud 2022: A Report to the Nations from the Association of Certified Fraud Examiners (ACFE), with losses exceeding $3.6 billion. Asset misappropriation is the most common occupational fraud, albeit the least costly. Financial statement fraud is the least common fraud scheme, but also the most costly. Corruption falls in the middle of fraud schemes in terms of both percentage of cases and median losses.
The typical fraud case takes 12 months to detect, causing losses of $8,300 per month. The average (mean) loss per case is $1,783,000 worldwide, with a median loss of $117,000. In the United States and Canada, the mean loss per fraud case is $1,460,000, with a median loss of $120,000.
Think larger corporations are most at risk? Think again. ACFE reports that the median loss per case for small businesses (fewer than 100 employees) is $150,000 — higher than the median loss per case for all larger companies (more than 100 employees).
Fortunately, as the data suggests, the United States has mitigation measures, including federal and state laws, governmental oversight and fraud detection investigators. Yet, fraudsters have been consistently effective through the years, even with moves toward digital payments and technologies designed to thwart them. Developments like blockchain technology and cryptocurrency complicate matters for fraudsters and fraud examiners alike. But, overall, the last 10 years has seen a downward trend in both the median losses and median duration of occupational fraud.
Several procedures and controls are in place to combat fraud in accounting:
Fraud Prevention Plan
ACFE reasons that “all frauds, at their heart, are based upon breaches of trust.” Businesses must place trust in their employees, granting access to assets and vulnerabilities. The vast majority of workers will likely not abuse this trust. However, when even a tiny percentage of the 3.3-billion-person global labor force feels they can commit fraud without being caught, an enormous amount of harm can be done. Thus, transparency about anti-fraud controls and evidence of active detection through audits and monitoring software send a message to would-be criminals that they will be caught.
A plan encompasses all of the action items below and is disseminated to key stakeholders and all personnel within the organization.
Create a Culture of Integrity
In conjunction with a documented plan, senior management need a zero fraud-tolerance culture. Expectations for ethics and accountability must come from the top and be promoted with broad reach and high frequency. Because employees take cues from their superiors (all the way to the C-suite), lack of integrity trickles down through the ranks. For this reason, an open-door policy that encourages whistleblowing is a key cultural component. Employees should be able to make anonymous reports about questionable practices as well.
Code of Conduct
According to the Report to the Nations, this anti-fraud control is one of the most common and was shown to reduce the median loss from fraud by 40% — a sizable reduction. This control also correlated with a 33% reduction in the duration of fraud. Employees must know that they will meet high standards, which include ironclad avoidance of fraud.
Specific Detection Controls and Personnel
Transparency in detection controls is a highly effective deterrent. Controls may include software that monitors emails and financial activities, unplanned audits and surprise fraud assessments.
Employing experts in fraud control furthers the perception that getting away with wrongdoing will be impossible. Publishing information on LinkedIn, as well as communicating with recruiters about these measures, helps make organizations less attractive to crooks.
Ongoing Employee Training
Organizations that conducted fraud training for employees saw a 45% reduction in money lost per case and a 33% reduction in duration of fraud campaigns before discovery. Employees should be trained in red flags and what constitutes fraud, and they must be encouraged to report suspicious activity without fear of retribution. Also, someone within the organization, or perhaps a contracted third party, should be available for advice when uncertainty looms.
Training Starts in the MAcc Program
The Emporia State University Master of Accountancy (MAcc) online program includes an elective, Fraud Examination, that explores forensic accounting-related fraud, asset theft and financial statement misstatements. Topics include the nature of fraud, fraud prevention, detection methods, investigation procedure and types of fraud.
Given the high cost of fraud in financial loss and ruined organizational brands, this course is one more component that employers value in graduates. Graduates of an advanced degree in accountancy will be equipped to take on the fraud challenges of the modern day.
Learn more about Emporia State University’s online Master of Accountancy program.