� CITY COUNCIL
� Staff Report
Meeting Date:
To:
From:
Staff Contact:
Subject:
District:
April 5, 2022
Mayor and City Council
Scott Chadwick, City Manager
Robert Threatt, Internal Audit Manager
[email protected], 442-339-2418
Laura Rocha, Deputy City Manager, Administrative Services [email protected], 442-339-2415
Employee Fraud and Ethics Hotline Recommendation
Citywide
Recommended Action
CA Review CKM
Approve a resolution authorizing implementation of a fraud and ethics hotline exclusively for city employees.
Executive Summary
The city's Internal Audit Manager has evaluated the benefits of implementing a fraud and ethics hotline for use by city employees, as called for in the fiscal year 2021-22 internal audit plan.
Implementing a fraud and ethics hotline would provide city employees with a tool for reporting suspected cases of fraud, waste or abuse of city resources. Doing so will also further strengthen the city's ability to deter and detect such activities.
The audit plan called for the auditor to research possible hotlines and then report the findings and make a recommendation to the City Council. Staff are recommending that the City Council approve the implementation of a fraud and ethics hotline for city employees to include contracting with an outside vendor for hosted hotline services.
Discussion
California Government Code Section 53087.6, subdivision (a)(2), allows the City Council to authorize the City Auditor to establish a hotline to receive reports of fraud, waste, or abuse of city resources. "Fraud, waste, or abuse" means any activity that falls into one of these three categories:
1. Violates laws or regulations relating to corruption, malfeasance, bribery, theft of government property, fraudulent claims, fraud, coercion, conversion, malicious prosecution, misuse of government property, or willful omission to perform a duty
2. Is economically wasteful
3. Involves gross misconduct
April 5, 2022 Item #11 Page 1 of 96
The proposed hotline is not meant to be a substitute for reporting such concerns through the normal processes and lines of authority. However, management recognizes that employees may not feel comfortable communicating such information directly to their supervisors.
Additional benefits to implementing a fraud and ethics hotline are outlined in the Association of Certified Fraud Examiners's 2020 Report to the Nations (Exhibit 2, pages 18-23), a global study on occupational fraud. The report's findings and statistics support the implementation of hotlines . The most noteworthy, relative to staff's recommendation, is the degree to which hotlines increase the likelihood an organization will receive fraud tips. The tips, in turn, aid organizations in identifying fraud 50% quicker than organizations without hot lines. That further helps to mitigate losses by identifying fraud sooner.
In weighing the benefits of implementing a hotline, the auditor researched hotlines at three other public agencies - the City of San Diego, the Port of San Diego and Solano County- and interviewed personnel responsible for overseeing their use. The first two public agencies contracted with a third-party vendor, Navex Global, to host their hotlines . The third, Solano County, used a system that was developed and managed by the county's employees.
Following this research, city staff requested and received quotes from three vendors who offer hosted hotline services. The services offered by each vendor were essentially identical. Each included a turnkey hotline system that established no fewer than two intake points where city employees could submit reports of suspected fraud, waste, or abuse. Once reports are submitted by employees using either an online form or a toll-free phone line, the systems each send an email notification to city staff indicating that a report has been received. Staff could then use a link in the notifications to retrieve the report and any attachments. The hotlines permit a two-way communication between the reporting party and the managers responsible for investigating the reports .
Upon implementation of the hotline, the city would have a small cross-functional group of managers, overseen by the Internal Audit Manager, perform an initial review of any reports received and to oversee any investigations deemed necessary. Depending on the details of the reports, investigations may be assigned to any of the city's different subject matter experts (e.g., Human Resources, the Police Department, or the Finance Department, to name a few). If it's found that the city has another reporting mechanism designed to address the primary issue identified in the report, the report will be directed to that program or tool. An example of such a tool would be the Police Department's online crime reporting tool.
If malfeasance is found as a result of any investigation , the matter will be immediately referred to the appropriate department or office within the city for the appropriate next steps.
Depending on the circumstances and the nature of the malfeasance, this could include the City Manager's Office, the City Attorney's Office, Police Department, or Human Resources.
In keeping with the city's commitment to transparency, the Internal Audit Manager will prepare a summary statistical report of hotline activity on a recurring basis and will present the results to the City Council. If there is a substantiated case of fraud, waste or abuse, the City Council will receive a report of findings and actions taken.
The Internal Audit Manager and the managers who review the reports will comply with the confidentiality requirements of California Government Code Section 53087.6 (Exhibit 3). The April 5, 2022 Item #11 Page 2 of 96
departments investigating allegations shall also take steps to comply with these confidentiality requirements.
Staff recommend the city leverage the expertise of a vendor, Navex Global, to develop and implement the fraud and ethics hotline. The city will oversee and manage the review and investigation, when necessitated, of all reports received. For the costs outlined in the Fiscal Analysis section below, the city is receiving the following value:
• Ethics-Point hotline, an industry leading governance, risk and compliance hotline system • A five-week implementation timeline, with Navex Global responsible for most of the work
• A co-branded hotline webpage for the intake of reports • A toll -free, staffed phone line available for the intake of reports 24 hours a day, seven days a week and every day of the year
• A well -defined reporting workflow that generates automated notifications and on demand reports
• Marketing materials provided to the city to help build hotline awareness • Training for the city staff responsible for managing the hotline While the option exists to develop a similar hotline internally with city resources, there is value delivered by Navex Global that the city is not able to duplicate or do so at a reasonable cost.
That includes industry leading governance, risk and compliance training resources, and a fully staffed call center. In addition to the value-added features of the vendor hosted hotline, avoiding the additional administrative burden of the hotline implementation is factored into staff's recommendation.
Options
1. Authorize the city to implement a fraud and ethics hotline to serve as a tool for employees to report suspected cases of fraud, waste, or abuse of city resources.
Pros
• Statistics show that entities with fraud hotlines are able to deter fraud and to mitigate its effects by identifying fraud quicker than entities with no such tool • A fraud hotline will strengthen the city's internal controls by contributing to its ability to detect fraud through the analysis of information reported by employees
• Such a hotline provides employees with a direct line of communication to report what they believe to be cases of fraud, waste and abuse of city resources • Implementing a hotline demonstrates that the city's executive leadership takes its responsibility to safeguard taxpayer funded city resources and assets seriously Cons
• There is an added administrative burden with managing such a tool and investigating reports submitted by employees
2. Do not authorize staff to implement a fraud and ethics hotline at this time .
Pros
• By not implementing the proposed hotline, city staff avoid an increase in administrative duties
April 5, 2022 Item #11 Page 3 of 96
Cons
• The city will miss an opportunity to strengthen its internal controls and increase transparency
Staff recommend Option 1.
Fiscal Analysis
If the hotline is approved , staff plan to engage a third -party vendor that provides hotline hosting services. Those services would require an initial three-year agreement that would cost $5,300 in the first year and $4,300 in each of the second and third years, not to exceed a total of $13,900 for the three -year period. The amount of this agreement is within the City Manager's procurement authority under the city's Purchasing Ordinance (Carlsbad Municipal Code Chapter 3.28). The necessary funds for the first year have been requested in the fiscal year 2022-23 Administrative Services Administration Division budget and funds for subsequent years will be included in the respective future budget requests.
Next Steps
If the City Council concurs with and approves staff's recommendation, the city will develop detailed procedures, identify the necessary training and enter into a short-term agreement with Navex Global to provide their Ethics-Point hotline services.
Environmental Evaluation
This action does not constitute a "project" within the meaning of the California Environmental Quality Act under California Public Resources Code Section 21065 in that it has no potential to cause either a direct physical change in the environment or a reasonably foreseeable indirect physical change in the environment.
Public Notification
This item was noticed in keeping with the state's Ralph M. Brown Act and available for public viewing and review at least 72 hours before the scheduled meeting date .
Exhibits
1. City Council resolution
2. The Association of Certified Fraud Examiners' 2020 Report to the Nations
3. California Government Code Section 53087.6
April 5, 2022 Item #11 Page 4 of 96
EXHIBIT 1
RESOLUTION NO. 2022-086
A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF CARLSBAD, CALIFORNIA,
APPROVING THE IMPLEMENTATION OF A FRAUD AND ETHICS HOTLINE TO PROVIDE
EMPLOYEES WITH A TOOL FOR REPORTING SUSPECTED CASES OF FRAUD, WASTE, AND
ABUSE OF CITY RESOURCES
WHEREAS, California Government Code Section 53087.6, subdivision (a){2), allows the City Council to authorize the City Auditor to establish a hotline to receive reports of fraud, waste, or abuse of city resources; and
WHEREAS, "fraud, waste, or abuse" means any activity that (1) violates laws or regulations relating to corruption, malfeasance, bribery, theft of government property, fraudulent claims, fraud, coercion, conversion, malicious prosecution, misuse of government property, or willful omission to perform a duty; (2) is economically wasteful; or (3) involves gross misconduct; and WHEREAS, the fiscal year 2021-22 Internal Audit Plan calls for the city's Internal Audit Manager to evaluate the benefits of a dedicated fraud and ethics hotline and to present the findings and recommendations to the City Council; and
WHEREAS, the primary purpose of the fraud and ethics hotline is to provide city employees with a tool for reporting suspected cases of fraud, waste, and abuse of city resources directly to management; and
WHEREAS, city staff recommend that a dedicated fraud and ethics hotline be implemented with city staff providing recurring reports to the City Council summarizing the number and general nature of reports received through the hotline and more detailed reports when there are substantiated cases of fraud, waste, or abuse, with all reports complying with the confidentiality requirements of California Government Code Section 53087.6; and
WHEREAS, the hotline is not intended to replace the standard chain of command reporting, however the hotline is available to city employees who feel they need an alternate reporting mechanism for communicating issues of fraud, waste or abuse of city resources to the city's management; and
April 5, 2022 Item #11 Page 5 of 96
NOW, THEREFORE, BE IT RESOLVED by the City Council of the City of Carlsbad, California, as follows:
1. That the above recitations are true and correct.
2. That the implementation of a dedicated fraud and ethics hotline is approved.
PASSED, APPROVED AND ADOPTED at a Regular Meeting of the City Council ofthe City of Carlsbad on the 5th day of April 2022, by the following vote, to wit:
AYES:
NAYS:
ABSENT:
Hall, Blackburn, Bhat-Patel, Acosta, Norby.
None.
None.
ftv' FAVIOLA MEDINA, City Clerk Services Manager
(SEAL)
April 5, 2022 Item #11 Page 6 of 96
Exhibit 2
REPORT TO THE NATIONS ®
2020 GLOBAL STUDY ON OCCUPATIONAL FRAUD AND ABUSE
I
I
J /
_ ___, /
I
I
~ ACFE
Asso1.:.n1on 01 Cemficd Fraud Examiners
FOREWORD
The 2020 Report to the Nations-the ACFE's 11th study on the costs and effects of occupationa l fraud-represents the latest in a series of reports dating back to the first edition published in 1996. Collectively, these studies represent countless hours of work by our staff spent gathering, analyzing, and interpreting the data from thousands of cas es of fraud committed against organizations of all types and sizes. We have invested so much time and effort into this research because we recognize two simple truths: (1) occupationa l fraud imposes tremen dous costs upon businesses and governmen t agencies throughout the world; and (2) in order to deal with such a problem , we must first understand it. In the 24 years since it was first published, the Report to the Nations has arguably contributed more to our understanding of occupational fraud than any other source of information .
The first Report to the Nation was launched in 1996 by ACFE Founder, Dr. Joseph T. Wells, CFE, CPA, because he recognized that there was a glaring lack of information about occupational fraud. More impor tantly, he also recognized that the ACFE was uniquely situated to address this problem because we were sitting on what was probably the greatest source of fraud information in the world-the collective knowledge and experiences of the Certified Fraud Examiners who make up our association.
Over the years, the ACFE has received a great deal of praise and credit for publishing the Report to the Nations, which is the most widely quoted source of occupational fraud data in the world. But none of this would be possible without the work of thousands of CF Es who have taken the time to share with us very detailed information about the cases they have investigated and the lessons they have learned. I am reminded that this is why we have an association like the ACFE in the first place-so that our members can share infor mation, contribute to the common body of knowledge, and learn from one another. The ACFE is proud to be the conduit helping to broadcast and transmit that information, but make no mistake: It is our members who are the source of every piece of data contained in these pages. This study is a tribute to the important work they do and their willingness to give back to the profession.
On behalf of the ACFE and all of the CFEs who have contrib uted to thi s study, I am proud to present the 2020 edition of the Report to the Notions.
Bruce Dorris, J.D., CFE, CPA
President and CEO, Association of Certified Fraud Examiners Item #11 Page 8 of 96
CONTENTS
Foreword 2 Collusion by Multiple Perpetrators 48
Perpetrator's Criminal Background 48
Key Finding s 4
Perpetrator's Employment History 49
Introduction 6 Behavioral Red Flags Displayed by Perpetrators 49 Spotlight: The Global Cost of Fraud 8 Non-Fraud-Related Misconduct by Perpetrators 51 How Is Occupation al Fraud Committed ? 10 Human Resources-Related Red Flags 51 Categories of Occupational Fraud 10 Spotlight: Behavioral Red Flags of Fraud 52 Duration of Fraud Schemes 14 Case Results 54
Velocity of Fraud Schemes 16 Internal Action Taken Against Perpetrator 54 Spotlight: How Occupational Fraud Is Concealed 17 Spotlight: Response to Fraud 55 Detection 18 Reasons for Not Referring Cases to Law Enforcement 56 Initial Detection of Occupational Fraud 18 Recovering Fraud Losses 56 Median Loss and Duration by Detection Method 20 Fines Against Victim Organizations 57 Spotlight: Hotline and Reporting Mechanism Effectiveness 21 Methodo logy 58 Reporting Mechanisms 22 Analysis Methodology 59
Parties to Whom Whistleblowers Report 23 Survey Participants 60 Vict im Org anizations 24 Regiona l Focus 62
Type of Organization 24 Asia-Pacific 62
Size of Organization 25 Eastern Europe and Western/Central Asia 64 Industry of Organization 26 Latin America and the Caribbean 66 Spotlight: Fraud in Nonprofits 28 Middle East and North Africa 68 Anti-Fraud Controls at Victim Organizations 31 Southern Asia 70 Spotlight: Internal Control Weaknesses that Sub-Saharan Africa 72 Contribute to Occupational Fraud 36
United States and Canada 74
Perpetrato rs 38 Western Europe 76
Perpetrator's Position 38 Statistical Appendix 78
Perpetrator's Tenure 39
Perpetrator's Department 40 Index of Figures 82
Perpetrator's Gender 43 Fraud Prevention Checklist 84
Perpetrator's Age 45
Glossary of Terminology 86
Perpetrator's Education Level 46
Spotlight: Profile of a Fraudster 47 About the ACFE 87
April 5, 2022 It em #11 Page 9 of 96
Contents Report to the Nations
-
KEY FINDINGS
OUR STUDY
COVERED
Q 2,504 CASES • ---; Caus ing total
losses of mo re tha n
O-D---0-0
□~ TYPICAL
□ [] □ FRAUD CASE
r- ---------------- ~
' '
0 O
lasts
14 MONTHS
before
detection
causes a
loss of
$8,300
per month
'--- ------------------------------------
'
i CORRUPTION WASTHE
: MOST COMMON
~i i-!- . ~ ~ - GLOBAL REGION
: • SCHEME IN EVERY
'. ________ ... -------------------------
·~
Org anizati on s w ith
FRAUD AWARENESS TRAINING
for employees we re
more likely to gather tips throu gh
FORMAL
REPORTING
MECHANISMS
$3.6 BILLION
CFEs ESTIMATE THAT
ORGANIZATIONS
LOSE
5 % OF REVENUE
TO FRAUD
EACH YEAR
ASSET MISAPPROPRIATION
SCHEMES f~;
most common and least costly
86%
OfCASES
S100,000
median loss
MEDIAN LOSS
PER CASE:
$125,000
AVERAGE LOSS
PER CASE:
$1,509,000
FINANCIAL STATEMENT
FRAUD SCHEMES f~;
least common and most costly
10%
OfCASES
$954,000
median loss
Qt l ~ ~ D(o •~~~';;,,•,','.'.2'.'.'.,:'.'° ~
came from employees \._)l
______ TELE PH~~,: ~~!~Is~~ ~~d EMAIL,-...:0
whistleblowers in
33o/o
OF CASES
'--------- -------- -------- - --··- - -------·-----'
4 Kt>y Findings Reporl 10 Ille Nations
ufi' USE OF TARGETED ANTI-FRAUD CONTROLS
HAS INCREASED OVER LAST DECADE
'
HOTLINE t13% A lack of internal cont rols
CERTAIN FRAUD RISKS
WERE MORE LIKELY IN
SMALL BUSINESSES
THAN IN LARGE
ORGANIZATIONS:
con tribut ed to nearly
ANTI-FRAUD POLICY t13% ' ,------- ~-------, ' '
FRAUD TRAINING FOR
-~~
EMPLOYEES t11%
FRAUD TRAINING FOR
t 9% 1/3 OF FRAUDS MANAGERS/EXECUTIVES
THE PRESENCE OF ANTI-FRAUD CONTROLS
IS ASSOCIATED WITH LOWER FRAUD LOSSES
AND QUICKER DETECTION
~ 0 v .
' ' ' ' ' ' ' '
FEMALE
$150,000 $85,000
Medi;in toss Median toss
Men committed 72%
of all occupat ional fraud,
and also caused
large r losses than women
c§:&~==o~
'~ l; 80% OF FRAUDSTERS I)
Owners/executives
committed on ly 20% of
occupationa l fra uds, but th ey
caused the largest losses
•
OWNER/EXECUTIVE
---------- $600,000
MANAGER
• ------------$150,000
EMPLOY££
• -------------- $60,000
0 460/o of victim
organizations declined
to refer case s to
law enforce ment
because
Billing fraud _________________ _____ 2X HIGHER
Payroll -----------------------···--- 2X HIGHER
Check and payment
tamperi ng ----------------------4X HIGHER
MORE THAN HALF of all occupational
frauds came from these four departments:
OPERATIONS 15%
r-----------i) ACCOUNTING 14%
fnlnnITT EXECUTIVE/UPPER ,---------- viJ!}7 MANAGEMENT 12% SALES 11%
, 4201. ~ 26% OF 70 OF OCCUPATIONAL
OCCUPATIONAL FR AUDSTERS WERE
FR AUDSTERS WERE FACED SOME FORM OF
INTERNAL DISCIPLINE FROM INTERNAL DISCIPLINE
WAS SUFFICIENT
LIVING BEYOND THEIR MEANS
EXPERIENCING FINANCIAL
DIFFICULTIES
THE VICTIM ORGANIZATION
Key Findings Repor1 to the Nations 5
-
INTRODUCTION
This study represents the most comprehensive
examination available of the costs, methods,
victims, and perpetrators of occupational fraud.
The Association of Certified Fraud Examiners is
pleased to present the 2020 edition of the Report
to the Nations, our 11th study of the impact occu
pationa l fraud has on organ ization s throughout the
world. Occupational fraud1-fraud committed by
individuals against the organizations . that employ
them- is among the costlie st form s of financial crime in existence. There are more than 3.3 billion people
in the global workforce,2 and nearly all of them have
access to or control over some portion of their em
ploy ers' cash or assets. For the ones who decide to
seek illegal gains, their workp lace is, in many cases, the most logical and convenient target. While the vast
majority of those 3.3 billion people will never abuse
the trust placed in them by their employers, the small
percentage who do can cause enormous damage . As
this report illustrates , that damage could amount to
trillion s of dollars in losses each year.
This study contains an analysis of 2,504 cases of
occupat ional fraud that were investigated between
January 2018 and September 2019. This is a tiny
fraction of the numb er of fraud s committed each
year against millions of businesses, government
' Occupational fraud is formally defined as the use of one's occupation for personal enrichment through the deliberate misuse or misapplication of the employing organization's resources or assets.
2 United Nations Department of Economic and Social Affairs, World Economic Situotion and Prospects Monthly Briefing, April 1, 2019.
April 5, 2022
Introduction Report to the Nations
The goal of the Report to the Nations
is to compile detailed information
about occupational fraud cases in
five critical areas:
O The methods by which occupational
fraud is committed
O The means by which occupational frauds
are detected
O The characteristics of the organizations
that are victimized by occupational fraud
O The characteristics of the people who
commit occupational fraud
O The results of the cases after the frauds
have been detected and the perpetrators
identified
organizations, and nonprofit s thro ughout the world.
Yet this study repres ents the most compreh ensive
examinatio n available of the costs, method s, victims, and perpe trators of occupational fraud. The data
presented here was gathered through our 2019
Global Fraud Survey. Each Certified Fraud Examiner
(CFE) who took part in the survey was presented with
Item #11 Page 12 of 96
a detailed questionnaire consisting of 77 questions The information presented in this study is drawn about a speci fic case of fraud they had investigated. from cases that occurred in 23 different industry These CFEs provided infor mation on the method of categories. These frauds affected large multinationa l fraud employed, the loss, the victim organization, the organizations, small nonprofits, and every size and perpetrato r, the means of detection, and the response type of business or government agency in between. by the victim organization after the fraud had been The fraudsters in these cases ranged from C-suite detected. We are deeply indebted to the CFEs who execut ives to entry-level emp loyees. The lesson of shared thei r knowledge and experiences to help us this and our previous studies is clear: No organization prepare this report. is immune from occupationa l fraud, and these crimes can originate from anywhere within the organ ization.
FIG. 1 Reported cases by region
United States and Canada
CASES: 895 (46%)
Sub-Saharan Africa
Western Europe
CASES: 128 (7%)
Apri l 5, 2022
CASES: 301 (15%)
Latin America
and the Caribbean
CASES: 101 (5%)
Middle East
and North Africa
CASES: 127 (7%)
~~. 4 '.
. i
Asia-Pacific
CASES: 198 (10%)
Southern Asia
CASES: 103 (5%)
Eastern Europe and
Western/Central Asia
CASES: 95 (5%)
Item #11 Page 13 of 96
Introduction Report to the Nations
-
-
The cases in our study occurred in 125 coun
tries throughout the world, which also helps
underscore the global nature of the threat
posed by occupational fraud. Figure 1 on page
7 shows the number and percentage of cases
from eight major geographica l regions. (Be
cause data in our study was gathered through
a survey of CFEs, the number of cases in each
region largely reflects the geographica l make
up of ACFE membership. It should not be read
to indicate that fraud is more or less prevalent
in any particular region.)
We present this report with the hope that it will
be of use to anti-fraud practitione rs, organiza
tional leaders, academic researchers, and the
public at large. We have compi led a great deal
of data about the methods, costs, and indica
tors of occupational fraud, along with valuable
informa tion on how these crimes are detected
and how they might be prevented or mitigat
ed. The amount of money lost to occupatio nal
fraud each year represents a stagge ring drain
on the global economy. It directly impacts
organizatio ns' abilities to create jobs, pro
duce goods and services, and provide public
services. The better we can understand how
and why these crimes occur and how to fight
them, the better we will be at directing the
proceeds of commerce and state action to
ward the goals for which they were intended,
rather than into the pockets of the fraudsters
who prey on the system. We hope this study
will contribute to the public understanding
of these crimes; advance the commo n body
of anti-fraud knowledge; and contribute to
improved detection, deterrence, and investiga
tion of occupational fraud.
April 5, 2022
Introduction Report to the Nations
The Global Cost of Fraud
Fraud is a global problem affecting all organizations
worldwide . Because occupational fraud is frequently
undetected and often never reported , it is difficult to determine the full scope of global losses. But our data provides insight into the enormity of this issue.
:--c ~ 2,504 CASES
I
:_ -• V 125 COUNTRIES
Causing total
losses of more than
$3.6 BILLION
AVERAGE LOSS
PER CASE:
$1,509,000
~ LOSS
PER CASE
S1.000.000
S800,000
S600.000
S400.000
S200,000
so
ASIHACIFIC
25TH PERCENTILE
$29,000 75 TH PERCENTILE
MEDIAN
: $125,000
$605,000
$100,000 $:?00.000 $300,000 $400,000 $:>00.00 0
THE TYPICAL LOSS VARIES BY REGION
_1:,
EASTERN EUROPE LATIN AMERICA
AND WESTERN/ AND TllE
CENTRAL ASIA CARIBBEAN
21% OF
CASES CAUSED
LOSSES OF
1~:: !f"il
MIDDLE EAST SOUTHERN SUB·SAHARAN
AND ASIA AFRICA
NORTH AFRICA
..
CFEs ES
ORGA
LOSE
TIMATETHAT - --NIZATIONS -- -.. -
~~ ~
5%
OF REVENUE
TD FRAUD
EACH YEAR
-
•
UNITED STATES
AND CANADA
.. " ,.
iii! :
••
nru· -1:11_[
I I
WESTERN
EUROPE
.i
PROJECTED
AGAINST 2019 GWP
($90. 52 TRILLION),
THAT'S MOR E
THAN
" $4.5 TRILLION
LO ST TO FRAUD
GLOBALLY
EAC H YEAR
~ ~ ~ ~ ~
- -
SOURCE WWW.IMF ORGIEXTERNAUDATAM/l• :-:;,: k,(>~ DaWEO',::;F:\•: ::,.,/\CV:;.:\'. ::'JWORLD Introduction Report to the Ni!lions
-
Categories of Occupational Fraud
At the highest level, there are three primary categories of occupa tional fraud. Asset misappropriation, which involves an employee stealing or misusing the employing orga
nization's resources, occurs in the vast majority of fraud schemes (86% of cases); however, these schemes also
tend to cause the lowest median loss at USD 100,000 per case (see Figure 2). In contrast, financial statemen t fraud schemes, in whic h the perpetrator intentionally causes a ma terial misstatement or omission in the organization's financial stateme nts, are the least common (10% of schemes) but
costliest category of occupational fraud. The third category, corruption-which includes offenses such as bribery, con flicts of interest, and extortion- falls in the middle in terms of both frequency and financia l damage . These schemes occur in 43% of cases and cause a median loss of USD 200,000.
April 5, 2022
How Is Occupational Fraud Committed? Report to the Nations FIG. 2 How is occupational fraud committed?
86%
V)
Vl
0 --'
z
<t
0 w
:i:
43%
10%
Asset Financial
misappropriation Corruption statement fraud
$100,000
$200,000
$954,000
Item #11 Page 16 of 96
FIG. 3 Occupational Fraud and Abuse Classification System (the Fraud Tree)3 Corruption Asset Misappropriation Financial Statement Fraud I
3 The definitions for many of the categories of fraud schemes in the Froud Tree are found In the Glossary of Terminology on pg. 86.
April 5, 2022 Item #11 Page 17 of 96
How Is Occupational Fraud Committed? Report to the Nations -
-
In one-th ird of the cases in our study, the fraudster committ ed more than one of the three primary categories of occupat ional fraud. As noted in Figure 4, 26% of fraudster s undertook both asset misapp ropriation and corrupt ion schemes, 3% misappro priated assets and committed finan cial statement fraud, 1% engaged in both corruptio n and financial statem ent fraud , and 5% participat ed in all thr ee categories.
April 5, 2022
FIG. 4 How often do fraudsters commit more than one type of occupational fraud?
Asset
misappropriation
Asset misappropriation only
Asset misappropriation and corruption
Corruption only
F:11c111ci;il
st<1tc111c11t fr ilUd
Corrupt io11
-------
. 53%
• • 26%
----------
• 11%
Corruption, asset misappropriation, and financial statement fraud • • • 5% Asset misappropriation and financial statement fraud • • 3% ------ • 2% Financial statement fraud only
Corruption and financial statement fraud
----------
• • 1%
Item #11
How Is Occupational Fraud Committed? Report to the Nations
Asset Misapprop riation Sub-Schemes
Within the broad category of asset misappropriation, fraudsters use several methods to steal funds and other resources from their employers. Figure 5 is a heat map that shows the frequency and median loss of each category of asset misappropriation sub-scheme (see Glossary on page 86 for definitions of each of these sub-scheme cate gories). Billing schemes are the most common form of asset misappropriation and also cause a high median loss, making this type of fraud a particularly significant risk. Other high-risk frauds based on the combination of frequen cy and impact are check and payment tampering, as well as schemes involving the theft of noncash assets.
FIG. 5 What asset misappropriation schemes present the greatest risk? $120,000
$110,000
$100,000
$90,000
$80,000
$70,000
$60,000
$50,000
$40,000
$30,000
$20,000
$0
Register disbursements
0 0% 2% 4% 6%
LESS R I SK
Category
Billing
Noncash
Expense reimbursements
Skimming
Cash on hand
Check and payment tampering
Payroll
Cash larceny
Register disbursements
April 5, 2022
8% 10% 12% 14%
Number of Cases Percent of All Cases
430 20%
395 18%
310 14%
230 11%
224 10%
206 10%
199 9%
169 8%
55 3%
16% 18% 20%
MORE R I SK
Median Loss
$100,000
$78,000
$33,000
$47,000
$26,000
$110,000
$62,000
$83,000
$20,000
Item #11 Page 19 of 96
How Is Occupational Fraud Committed? Report to the Nations -
-
Duration of Fraud Schemes
Not all fraud can be prevented. Even in the most secure organizations, it is likely that some type of employee fraud will eventually occur. Consequently , quick detection of fraud is vital to protecting an organization from pote ntial damage. Our research indi cates that the median duration of a fraud-that is, the typical time between when a fraud begins and when it is detected-is 14 months. Additio nally, as Figure 6 indicates, the longer a fraud remains undetected, the greater the finan cial losses.
FIG. 6 How does the duration of a fraud relate to median loss? V)
w
V)
<(
u
u.
0 1-
z w
u
a::
w
a..
29%
19%
13%
12%
10%
5% 5%
7%
s6 months 7-12 13-18 19-24 25-36 37-48 49-60 >60 months months months months months months months -$50,000
$90,000
$135,000
V) $210,000
V)
0 ....J
z $300,000 <(
Cl
w $340,000
~ $430,000
$740,000
April 5, 2022 Item #11 Page 20 of 96
How Is Occupational Fraud Committed? Report to the Nations When designing anti-fraud cont rols,
assessing fraud risks, and enacting
proactive detection measures, it is
helpful to understand the potential
impact of different types of fraud
schemes. In addition to analyzing
the median loss and frequency of
the categories of occupational fraud
(see Figures 2 and 5 on pages 10
and 13, respectively), we examined
how long cases in each of these
categories tend to last. As noted in
Figure 7, companies tend to catch
noncash schemes the quickest (13
months), whi le several scheme cat
egories typica lly last 2 years before
being uncovered.
April 5, 2022
FIG. 7 How long do different occupational fraud schemes last? Payroll
24 months
Check and payment tampering
24 months
24 months
Financial statement fraud
24 months
Expense reimbursements
24 months
24 months
Cash larceny
21 months
Corruption
18 months
16 months
Cash on hand
15 months
Noncash
13 months
Item #11 Page 21 of 96
How Is Occupational Fraud Committed? Report lo lhe Nations -
-
Velocity of Fraud Schemes
Recognizing that not all fraud schemes affect com
panies equally and that organizations must make
decisions in how and where to direct their anti-fraud
efforts, we wanted to know how quick ly occupationa l
frauds tend to cause harm. For each case reported
to us, we divided the loss amount by the number of
months the scheme lasted to determine what we refer
to as the scheme's velocity. The median velocity for all cases in our study was a loss of USO 8,300 per month.
Analyzing the velocity by scheme type revealed that
certain types of occupational fraud schemes cause
damage much more quickly than others. As Figure 8
shows, financial statement fraud schemes have the
greatest velocity of USO 39,800 per month, followed
by corrupt ion schemes, with a velocity of USO 11,100
per month. Because these schemes tend to result in
larger losses very quickly, organizations might use this data to prioritize their investments in mechanisms to
prevent and quickly detect these types of fraud. On
the other end of the spectrum, register disbursement
schemes and expense reimbursement schemes tend
to grow more slowly, with a velocity of USO 800 and
USO 1,400 per month, respectively, meaning orga
nizations typically have more time to uncover these
schemes before losses become significant.
FIG. 8 What is the typical velocity (median loss per month) of different occupational fraud schemes? Financial statement fraud
$39,800
Corruption
$11,100
Noncash
$6,000
Check and payment tampering
-
$4,600
Billing
-
$4,200
Cash larceny
-
$4,000
Skimming
-
$2,900
Payroll
1111 $2,600
Cash on hand
•
$1,700
Expense reimbursements
■ $1,400
Register disbursements
I $800
April 5, 2022 Item #11 Page 22 of 96
How Is Occupational Fraud Committed? Report to the Nations We also found differences in scheme velocity based on how many perpetra tors are involved in a fraud and based on the perpetrator' s level of author ity. Schemes with three or more perpe trators escalate much more quickly than those with just one or two perpetrators. Schemes committed by an owner/executive have a velocity over three times that of schemes committed by an employee or manager, highlighti ng how those in the highest positions have the ability to damage the company much more quickly than lower-level personnel.
Median loss Median duration
One perpetrator $90,000 14 months
Two perpetrators $105,000 14 months
Three or more perpetrators $350,000 15 months
Employee $60,000 12 months
Manager $150,000 18 months
Owner/executive $600,000 24 months
How Occupational Fraud Is Concealed
t., j 11 '' ( J '' '1 ''. ·1 • · : f I ' · i. : J; J 1 • 40%
Crec1ted frc1udulent
physiec1I documents
-
· I, · • ,. c1 1:, '. : ,r, ·., t1 · li , 1111 I 1 : 1°, •· · :; : ti, TOP 4 CONCEALMENT MET HODS USED □ Y rRAUDSHRS
360/o
Altered physica l
documents
27%
Altered electronic
documents or files
Scheme velocity
(loss per month)
$6,400
$7,500
$23,300
$5,000
$8,300
$25,000
26%
Crec1ted fmudu lent
electronic
documents or files
(})
-
-
I -
12% did not involve any attempts to conceal the fraud
- -=
How Is Occupationa l Fraud Committrd? • ' ', r~ .. ' I , ' Initial Detection of
Occupational Fraud
The foundation to effect ive detection
of occupationa l fraud is knowing the
most common methods by which fraud
is discovered. Despite the increasingly
sophist icated fraud detection techniques
available to organizations, tips were the
most common way occupationa l frauds
were discovered in our study by a wide
margin, as they have been in every one of
our previous reports. As shown in Figure 9,
more than 40% of cases in our study were
uncovered by tips, which is almost three
times as many cases as the next-most
common detection method. Therefore ,
processes to cultivate and thoroughly
evaluate tips shou ld be a priority for fraud
examiners.
Item #11 Page 24 of 96
Tip Sources
Figure 10 breaks down the sources of tips that led to fraud detect ion. Half of all tips came from employees, while a substantial number of tips came from outside parties, including custome rs, vendors, and competito rs.
These findings demonstrate that anti-fraud education and the communication of designated reporti ng mecha nisms shou ld target not only internal staff, but external parties as well.
FIG. 9 How is occupational fraud initially detected? FIG. 10 Who reports occupational fraud? 15%
Management review
12%
Employee
Other
-
6%
By accident
Ill 5%
Account reconciliation Customer
-
4%
External audit
-
4%
Anonymou"
Document examination
•
3%
Surveillance/monitoring
•
3%
Vendor
Notified by law enforcement
■ 2% Other
IT controls
■ 2%
CornpPtitor
Confession Shareho lder /owner
I 1%
April 5, 2022 Item #11 Page 25 of 96
Detection Report to the Nations
-
-
Median Loss and Duration by Detection Method
Our data also shows that some fraud detection
methods are more effective than others in the sense
that they correlate with lower fraud losses. Figure 11
shows the relationshi p between detection method
and the associated fraud scheme duration and loss.
In this chart, the red bars indicate schemes that were
detected by passive methods, meaning the fraud came
to the victim's attention thro ugh no effort of their own, including notification by police, by accide nt, or confes sion. Passively detecte d schemes tended to last longer and were associated with the highest median losses
relative to all other detection methods. The blue bars
indicate detectio n methods that are active, meaning
they involved a process or effort designed (at least in part) to proactive ly detect fraud, such as document ex- amination or surveillance/monitoring. Our data shows
that schemes discovered throug h one of these active
methods were shorter and had lower median losses
than those detected passively. The purple bars could
potent ially be passive or active, including tips and
external audit.
What we can learn from this data is that when fraud
is detected proactively, it tends to be detecte d more
quickly and thus causes lower losses, while passive
detection results in lengthie r schemes and increased
financial harm to the victim. Anti-fraud controls such
as account reconciliation, internal audit departmen ts, involved management review, and active cultivation of
tips are all tools that can lead to more effective detec tion of occupationa l fraud.
FIG. 11 How does detection method relate to fraud loss and duration?
MED I AN LOSS ME DIAN DURATION
$900,000 Notified by police 24 months
$225,000 -- Confession 17 months
$200,000 By accident 24 months
$150,000 - External audit 24 months
$145,000 - Tip --14months
$101,000 - Document examination 18 months
$100,000 - Management review 17 months
$100,000 - Internal audit 111111111111111 12 months
$81,000 • Account reconciliation - 7months
• Passive detect ion method $80,000 . IT controls - 6months e Polenltnlly active or p;issrve detectron method
e Active detection method $44,000 I Surveillance/monitoring - 7 months April 5, 2022 Item #11 Page 26 of 96
Detection Report to the Nations
Hotline and Reporting
Mechanism Effectiveness
Maintaining a hotline or reporting mechan ism
speeds up fraud detection and reduces losses.
Fraud awareness training furthe r improves cultivation
of tips through reporti ng mechanisms.
---- ---- · MEDIAN LOSSES WERE NEARLY---------;
~64°(~ DOUBLED
AT ORGANIZATIONS
WITHOUT HOTLINES
VICTIM ORGANIZATIONS
had hotlines
Effect of EMPLOYEE FRAUD AWARENESS TRAINING
on hotlines and reporting
Training increases the
likelihood of detection by tip
'AB l.l of cases detected
~ 7Q by tip with traini ng
--
Tips are more likely to be
sub mitt ed through reporting
mechanisms with training
tips with
: training 56%
A of cases detected by
• tip without tra ining 37%
Organizations with
hotlines detected fraud
by tip more often
49%
Of CASES
DETICTED
BY TIP
HOTLINES NO HOTLINES
Small organizations are especially
likely to detect occupationa l fraud by tip
<100 ()·• ---,
EMPLOYEES •• i
cases
detected
EMPLOYEES ~ }'"'
' Organizations with hotlines
detect frauds MORE QUICKLY
th an those without hotlin es
18 .,11, "
6) 11 ,
Sinc e 2010 , the use of hotlin es
or reporting mechanisms
has increased
notably 49%
2012 2014 2016 2018 2020
Detc-ction Report to the Nations 11
-
Reporting Mechanisms
In cases where a reporting mechan ism was used to
report fraud, we asked respo ndents to indicate how
the tip came in. In our two previous reports, tele
phone hotlines were the most common mechanism
whistleblowers used by a substan tial margin. As
shown in Figure 12, telephon e hotline use declined
substan tially in this report, while email and web
based/o nline reporti ng each rose to become nearly
equa l to telephone hotlines. The use of mailed
forms has also dro pped from 17% to 12% since 2016.
These finding s indicate that whistleblowers ' pre
ferr ed meth ods of report ing fraud may be shifting ,
particularly toward on line and in electro nic written
form. Consequently, organizatio ns shou ld consider
maintain ing multipl e repo rting channels to fit the
needs of those who submit tips.
FIG. 12 What formal reporting mechanisms did ~histleblowers use? Telephone hotline '' ..
Email
Web-based/online form
Mailed letter/form
Other -••,.-· -------tl-1------~em •·.
Fax (11-)._ ______ ,__ ___ --l_lU_
2016 2018 2020
April 5, 2022 Item #11 Page 28 of 96
Detection Report to the Nations
Parties to Whom
Whistleblowers Report
In approximately 33% of cases where a tip was
made, the whistleblowe rs did not use a forma l
reporting mechanism. Instead, they reported
their suspicions directly to supervisors, investi
gators, or other interested perso ns. Identifying
how often whistleb lowers tend to report fraud to
various parties can help organizatio ns answer
several important quest ions. Who should be
trained to handle a comp laint if they receive one?
How likely are whistleb lowers to report outside
of the organizat ion? How should complaints
lodged outside a forma l reporting mechan ism be
recor ded and escalated? Figure 13 indicates that
whistleblowers are most likely to report fraud
to their direct supervisors, yet many will go to
othe r parties, such as fraud investigat ion teams,
human resources, or the ir cowo rkers. Therefore,
it is importa nt to provide all staff with guidance
on how fraud allegations should be responded to
and escalated.
It is also noteworthy that 7% of reports were
made directly to law enforcement or regulators,
instead of interna lly, which is something most or
ganizations would hope to avoid. This illustrates
the importance of training staff on how and why
they should report fraud interna lly.
28%
Fraud investigation team 14%
12%
April 5, 2022
FIG. 13 To whom did whistleblowers initially report?
Direct supervisor
28%
Other
15%
Fraud investigation team
14%
Internal audit
12%
Executive
11%
Coworker
10%
Law enforcement or regulator
-
7%
Owner
-
7%
Board or audit committee
-
6%
Human resources
-
6%
In-house counsel
1111 4%
External audit
I 1%
Item #11 Page 29 of 96
Detection Report to the Nations
-
-
Type of Organi zation
As shown in Figure 14, 70% of frauds occurred
in for-profit organizations, with 44% of the victim
organizations being private companie s and 26%
being public companies. Private and public or
ganizations each suffered a median loss of USD
150,000. Nonprofit organizations only reported
9% of fraud cases and suffered the smallest
median loss of USD 75,000; however, many non
profits have limited financial resources to begin
with, so a loss of this amount can be particularly
devastating to these entities (see "Fraud in Non
profits" infograph ic on page 28).
Level of Govern ment Org anization
Resources and ope rations vary at differen t
levels of government, which can influe nce how
fraud affects these organ izations. To illustrate
this, we analyzed the government organizations
in our study by level. National -level government
entities experienced the greatest number of
fraud s (45%) and had the highe st median loss
of USD 200,000, which is more than twice as
much as the median loss at state/provincia l
governmen t entities (USD 91,000). While local
governmen ts report ed the seco nd-highest
number of cases (32%), they suffered a relatively
lower median loss of USD 75,000 .
April 5, 2022
Victim Organizations Report lo 1he Nations
11 1111111 - ■■-1111111 - ■■-1111111 - ■■-1111111 ::::
1111111 - ■■-1111111 ::::
1111111 - ■■-
1111111 ::: :
1111111 ::::
1111111 - ■■-1111111 ::::
1111111 ::::
FIG. 14 What types of organizations are victimized by
occupational fraud?
(/)
w
(/)
<t
u
u.
0 I-
z
w
u
a:
w
c..
(/)
(/)
0 __,
z
<t
0 w
::i;
44%
26%
16%
9%
■
5%
-
Private Public Government Nonprofit Other company company $75,000
$100,000 $100,000
$150,000 $150,000
FIG. 15 What levels of government are victimized
by occupational fraud?
•
National: 45%
1s200.000·1
•
State/provincial: 21%
[$91,00Q·)
•
Local:32%
($75,000;
Other. 2%
(N/A")
'Dollar amounts ore median loss. Median loss
calculations for categories with fewer than 10
cases were omitted.
Item #11 Page 30 of 96
Size of Organization
In Figure 16, the size of the victim organizations in our study is shown based on the number of emp loyees. The cases reported to us were evenly distributed, with about a quarter in each size category. Small businesses (those with fewer than 100 employ ees) had the highest median loss of USO 150,000, while large organization s (those with more than 10,000 emp loyees) had a median loss of USO 140,000. It is importan t to note, howeve r, that a small business likely will feel the impact of a loss this size much more than its larger counterparts .
Figure 17 shows the distribution of victim organizations by annual revenue, with media n losses ranging from USO 114,000 in the smallest organizations to USO 150,000 in the largest.
FIG. 16 How does an organization's size relate
to its occupational fraud risk?
en
w en
<
(J
u..
0 I-
z w
(J
0:
w
Q.
en en
0 ..,
z <
0 w
:I:
26\\\
<100
employees
$150,000
April 5, 2022
27\\\
23%
100-999 1,000-9,999
employees employees
$100,000
$120,000
25\\\
10,000+
employees
$140,000
FIG. 17 How does an organization's gross
annual revenue relate to its occupational fraud risk?
en w
en
<
(J
...
0 I-
z w
(J
0:
w
Q.
"' en
0 ..,
z
<
0 w
:I:
38'l\
<$50 million
$114,000
26'l\
24'l\
12\\\
I
$50 mlllion- $500 million- $1 billion• $499 million $999 million $120,000
$132,000
$150,000
Item #11 Page 31 of 96
Victim Organizations Report to the Nations
-
-
Figure 18 shows the frequency of different types of fraud schemes in small businesses (those with fewer than 100 employees) and larger organizat ions. Billing schemes occurred at almost twice the rate in small businesses compared to larger organizations, while check and payment tampering was nearly four times more commo n at small companies. In contrast, corru ption and noncash schemes occurre d more frequently in larger organizations.
FIG. 18 How do fraud schemes vary by organizat ion size? Corruption
Billing
Check and payment tampering
Expense reimbursements
Payroll
Skimming
Noncash
Financial statement fraud
Cash on hand
Cash larceny
Register disbursements
Industry of Organization
17%
15%
13%
38%
47%
30%
22%
20%
■ <100 employees
■ 100+ employees
Participants were asked to identify the industry of the victim organization. The most common industries reported to us were banking and financial services, government and public administration , and manufacturing. (It is important to note that this does not necessarily mean that more fraud occurs in these sectors; it might simply indicate that organizatio ns in these industries employ more CFEs than others.) The mining industry suffered the highest median loss of USO 475,000, while frauds in the energy sector had the next-highes t median loss of USO 275,000.
April 5, 2022 Item #11 Page 32 of 96
Victim Organlzatlons Report to the Nations
FIG. 19 How does occupational fraud affect organizations in different industries? Agriculture. forestry.
fisl1111cJ ,111c1 IHJ11t111g
Eclucc1tio11
$65,000
lnsurclllCC
$70,000
Ret,111
$85 ,000
Tr,1nsportc1tion ,1I1cl
w,1rl'110us1ng
April 5, 2022
Arts. entertilinmcnt.
,111cl recret1tion
$90,000
Energy
$275,000
Mc1nufilcturing
\1• ) /,-..,. CS'::,
$ 185 198,QQQ Cases
Services (other)
$150,000
Utilities
',li :J t~"-l .UC.,'::,
$ 20 163,QQQ Cases
Banking c1ncl
fin,rnci,1I services
'N :) ;\\IL Cl':,S
$ 386 100,QQQ Cases
Food service ancl
hospitality
M[D A"l .OSS
$114,000
Mining
$475,000
Co111munict1tio11s
and publisl1i11g
$115,000
Government illlcl
public c1cl111inistratio11
$100,000 ~~~
$254,000
Construction
\1C . >·t.·--J. ( JSS
$ 80 200,QQQ cases
Hcaltll CiHC
Mi- ~J /\'J '()'::,':,
$ 149 200,QQQ Cases
Religious. charitilble.
or social SelVICl'S
$76,000
Services (p1ofess1onal) Tecl111oloqy Tclccommu11icat1011s $150,000
Wholesille trilcle
$130,000
$150,000
ivi; · ) J\'J (JSS
$ 67 250,QQQ Cases
Item #11 Page 33 of 96
Victim Organizations Report to the Nations
-
Fraud in Nonprofits
Nonprofit organizations can be more susceptible to fraud due to having fewer resources available to help prevent and recover from a fraud loss. This sector is particularly vulnerable because of less oversight and lack of certain internal controls.
Nonprofit schemes Percent of cases
Corruption 41%
191 Billing 30%
~ CASEST
Expe nse reimbursement s
-
23%
Cash on hand
•
17% ' .--------------1
' ' ■ ' ' Noncash 16%
6 ' 0 Skimming ■
15%
MEDIAN LOSS AVERAGE LOSS
■ $75,000 $639,000
Check and payment tampering 14%
Cash larceny ■
12%
C®~
Payroll ■
12%
Financial statement fraud
■
11%
9 Register disbursements I 3%
Owner/executive
~iitN $250,000
----- ------ ------ -~ ----------------- 1
: I :
6 6
0 35%
of cases
Manager/supervisor
~iitN $95,000
----- -----,
: '
----------,
' ' : '
6 0
~
' r '
' ' ' ' ' '
6 9 0 0
~ ~ ....__.,
23%
of cases
Employee
~ii~AN $21,000
28 Victim Organizations Report lo the Nations
Nonprofit
organizations have
FEWER ANTI-FRAUD
CONTROLS in place,
leaving them
Surprise audits Formal fraud risk
assessments
··· 35% LACK OF INTERNAL CONTROLS
-- 19% LACK OF MANAGEMENT REVIEW
Manag ement review
OVERRIDE OF EXISTING
INTERNAL CONTROLS
57%
76%
/,'.. '· · ..
ii,_.,·
t ' ..
:C--''\"' :.
i~ I.
\ ..
~~ I • •' •
t;· ..
~~,-~ ~. i
Internal audit
department
■ Nonprofit organizatio ns
. Other_ .
organ1zat1 ons
CONTROLS
Detection AT NoNPRoF1Ts ------------------
TIP OR INTERNAL MANA GEMENT BY EXAMINATION
COMPLAINT AUDIT REVIEW ACCIDENT OF DOCUMENTS
40% 17% 13% 7% 6%
~ ~ [I]~ rn [fl
Victim Organizations Report to the Nations 19
-
Most Common Schemes by Industry
Identifying the most common fraud schemes within industries can help organizations design contro ls to guard against the ir most significant threats. In Figure 20, we show the most common occupational fraud schemes in industries with at least 50 reported cases. The risks are shaded from yellow to red, with darker variants represent ing higher-risk areas. For example, in the health care industry, corrupt ion represents the highest risk (40% of cases), followed by billing schemes (33% of cases).
FIG. 20 What are the most common occupational fraud schemes in various industries?
INDUSTRY
A rn-<1 ,J rid fin r c111
"-1 f, I((
Go.\ , 11111t 11t i111d public
(1cl,111n1c.,tr (1l1011
F outl t r. 1U 111(/
110 p1L1l1t1
L ESS RISK
April 5, 2022
Victim Organizations Report to the Nations
Cases
364
189
177
145
89 89
82 82
T7
64 63
62 59
54 52
Cl
~
ixi
11%
-
221l
M
13%
24t,
5%
"C >, C: c::
"' .,
~ .c:
C:
..!!! 0
'7ii .c:
V>
"' "' u u
10%
-
5% 9%
5% 6%
10% 10%
6% 7%
15% 15%
2% 5%
9% 13%
13% 12%
5% 9%
0% 5%
2% 3%
IOI 10%
0% 9%
13% 12%
~ "C
c:: ::,
., Jg
C: E ., c:: ., ~ .,
E ::, E >, .D ~ "' E a. "' "C c:: -~ -:;; Cl c:: 0
"'
c::
a ., ro .c:
'f V> ·o V>
.>< c:: "' ..., a. 2 ., c:: ..., ., E 0 a. "' c:: .c: ~ c:: 0
u !!! u ii: z
10% 10%
4% 111
--
14% 241
9% 2ft
6%
-
11% 9%
7% n
-
13%
3% 231
13% 22W.
6%
11%
15% 11%
15% 12%
.f'
., -
Item #11
2 >,
"' <l.
2%
-
10%
15%
6%
11%
5%
13%
13%
6%
11%
2%
12%
m
8%
~ c:: .,
E .,
~ ::,
.D
V>
'5 Cl
a:; c:: .E 1ii E 'o,
<11 3i: a:: V,
2% 10%
0% 7%
2% 8%
6% 10%
1% 9%
•
15%
2% 6%
1% an
4% 13%
0% 191
0% 0%
0% 5%
10% 14%
2%
4%
MORE RISK
Anti-Fraud Controls at
Victim Organizations
Proactive anti-fraud contro ls play a key
role in an organization's fight agai nst
fraud. While the presence of these
mechanisms alone does not ensure that
all fraud will be preven ted, manage
ment's comm itment to and investment
in targeted prevention and detection
measures send a clear message to em
ployees, vendors, customers, and others
about the organization's anti-fraud
stance.
We asked survey responde nts whic h of
18 common anti-fraud controls the victim
organization had in place at the time of
the fraud. Figure 21 shows that inde
penden t externa l audits of the organiza
tion's financia l statements are the most
common of the contro ls examined in our
study; 83% of the victim organizat ions
had their financia l statements audited
by an outside auditor. While we classify
such audits as an anti-fraud control for
purposes of our study, it is important to
note that this mechanism is not primarily
designed to detect or prevent all fra uds.
As noted in Figure 9 on page 19, only 4%
of the frauds in our study were uncov
ered through an exte rnal audit.
Other common anti-fraud contro ls
include a code of conduc t (present in
81% of victim organ izations), an interna l
audit department (74%), and manage
ment's certification of the financia l
statements (73%).
Apr il 5, 2022
FIG. 21 What anti-fraud controls are most common?
External audit of financial statements
83%
Code of conduct
81%
Internal audit department
74%
Management certification of financial statements
73%
External audit of internal controls over financial reporting 68%
Management review
65%
Hotline
64%
Independent audit committee
62%
Anti-fraud policy
56%
Employee support programs
55%
Fraud training for employees
55%
Fraud training for managers/executives
55%
Dedicated fraud department, function, or team
44%
Formal fraud risk assessments
41%
Surprise audits
____ l_ _______ ___l3~8%
Proactive data monitoring/analysis
38%
Job rotation/mandatory vacation
23%
Rewards for whistleblowers
13%
Item #11 Page 37 of 96
Victim Organizations Report to the Nations
-
-
Effectiveness of Anti-Fraud Controls
While impleme nting cont rols to prevent and detect
fraud is a necessary part of managing fraud risk, not
all anti-fraud controls are created equa lly. To help
organ izations understand the potential impact of
vario us controls, we com pared the median losses and
median durations of the frauds in our study based
on whethe r each specific control was present at the
victim organ ization during the fraud's occu rrence.
For every contro l we examined, organizat ions that had the cont rol in place experienced smaller fraud losses
and detected frauds more quickly than organizations
lacking that control. As seen in Figures 22 and 23,
four anti-fraud controls in particular were associated
How has the use of anti-fraud controls
changed over the last decade?
Over thC' l,ist tl'rl yc,1I s of OLJr stLJdrcs, foLJr of the controls we've ,1n,1ly?ccl l1ilve soc,n il co11sis-
tcI1t dlld l)Otili)IP lllC IP<lS(' in irnple111011t,1tio11 r,1tes. I liese co11trols ,110 i1111oncJ t l10se
mos t cornrnonly ,1ssoc,c1tcd w rtl1 ,1 robust
,1nt,-f1 ,iuci pr ogr ,1m, w hich incliciltcs tl1<1t
lllCICilSlllCJ llUllli)OIS of OIQillllZiltions
c1rc L1k111g tl10 tl1rcil t of frilud s01 i-
ously ,1ml implcmcnt inq I110,1surc·s
specrficillly dcsiqned to l1elp tl1em
rrntrgiltl' tl 1ese risks
with a 50% or greater reduction in both fraud losses
and duration: a code of cond uct; an interna l audit
department; management's certification of financia l
statements; and regular management review of in
ternal controls, processes, acco unts, or transactions.
Internal audits and management reviews are both
mechanisms that can be used to actively look for
fraud, so thei r correlatio n with reduced fraud losses and duration stands to reason. In contras t, codes of
conduct and managemen t certifications of financial
statements are less direct ly tied to fraud detection , but both mechanisms likely help increase the percep
tion of detectio n and form the foundation for a holistic anti-fraud culture.
2010 2020 l11crcc1se
~
51 64 13
l-=-
43 56 13
0 ~
44' 55 11'
r--h 46 'c 55"_ 9'j
AAA
April 5, 2022 Item #11 Page 38 of 96
Victim Organizations Report to the Nations
FIG. 22 How does the presence of anti-fraud controls relate to median loss? $200,000
■ Median loss without controls
■ Median loss with controls
$150,000
$100,000
$50,000
$0
Control Percent Control Control not Percent
of cases in place in place reduction
Code of conduct 81% $100,000 $205,000 51%
Internal audit department 74% $100,000 $200,000 50%
Management certification of financial statements 73% $100,000 $200,000 50% External audit of internal controls over financial reporting 68% $100,000 $200,000 50% Management review 65% $100,000 $200,000 50%
Hotline 64% $100,000 $198,000 49%
External audit of financial statements 83% $110,000 $204,000 46% Fraud training for employees 55% $100,000 $160,000 38%
Anti-fraud policy 56% $100,000 $150,000 33%
Proactive data monitoring/analysis 38% $100,000 $150,000 33% Surprise audits 38% $100,000 $150,000 33%
Formal fraud risk assessments 41% $100,000 $150,000 33% Employee support programs 55% $100,000 $150,000 33%
Fraud training for managers/executives 55% $100,000 $150,000 33% Independent audit committee 62% $100,000 $150,000 33%
Dedicated fraud department, function, or team 44% $100,000 $145,000 31% Job rotation/mandatory vacation 23% $100,000 $130,000 23% Rewards for whistleblowers 13% $120,000 $122,000 2%
April 5, 2022 Item #11 Page 39 of 96
-
Victim Organizations Report to the Nations
-
FIG. 23 How does the presence of anti-fraud controls relate to the duration of fraud? 25 ~ 20
... u w ...
w
0 ~ 15
"' :t ... z
0 :Ii
~ 10
0 w
:Ii
Code of conduct
5 Job rotation/mandatory vacation
Internal audit department
Control
Management certification of financial statements
Management review
External audit of financial statements
Surprise audits
External audit of internal controls over financial reporting Proactive data monitoring/analysis
Hotline
Formal fraud risk assessments
Anti-fraud policy
Fraud training for employees
Fraud training for managers/executives
Independent audit committee
Dedicated fraud department, function, or team
Rewards for whistleblowers
Employee support programs
April 5, 2022
Victim Organizations Report to the Nations
■ Median duration without controls
■ Median duration with controls
Percent Control Control not Percent
of cases in place in place reduction
81% 12 months 24 months 50%
23% 9 months 18 months 50%
74% 12 months 24 months 50%
73% 12 months 24 months 50%
65% 12 months 24 months 50%
83% 13 months 24 months 46%
38% 11 months 18 months 39%
68% 12 months 19 months 37%
38% 12 months 18 months 33%
64% 12 months 18 months 33%
41% 12 months 18 months 33%
56% 12 months 18 months 33%
55% 12 months 18 months 33%
55% 12 months 18 months 33%
62% 12 months 18 months 33%
44% 12 months 18 months 33%
13% 11 months 16 months 31%
55% 12 months 16 months 25%
Item #11 Page 40 of 96
Anti-Fraud Control s in Small Businesses
Small businesses face different types of fraud risks
than larger organizat ions (see Figure 18 on page 26),
and they also experience unique challenges in com
bating occupational fraud. Whether it's due to resource limitations, a lack of awareness, or a tendency to place too much trust in their employees, small businesses
implement anti-fraud controls at a much lower rate than the ir larger counterparts . The most common anti-fraud contro l-externa l audits of financial statements-was
only in place at 56% of small businesses, and only 48%
of these companies had a code of conduct, compared
to 92% and 91%, respect ively, of organizations with
more than 100 employees.
Our data shows that there are clear opportun ities for
small businesses to increase their protection against
fraud. Adopt ing a code of conduct and an anti-fraud
policy, having managers review the work of their sub
ordinates, and conducting targeted anti-fraud training
for employees and managers are all measures that are
correlated with significant reductions in fraud losses
(see Figure 22 on page 33), yet each was implemented
by fewer than half of the small businesses in our study.
Each of these measures can typically be implemented
without requiring a significant investment of resources and could help improve the anti-fraud environment of a
small organizat ion.
FIG. 24 How do anti-fraud controls vary by size of victim organization? External audit of financial statements 56%
Code of conduct 48%
Management certification of financial statements 39%
Management review 35%
External audit of internal controls over financial reporting 33% Internal audit department 31%
Employee support programs 23%
Independent audit committee 21%
Hotline 20%
Anti-fraud policy 20%
Fraud training for employees 19%
Fraud training for managers/executives 19%
Proactive data monitoring/analysis
-
5%
Surprise audits
Dedicated fraud department, function, or team - 11%
Formal fraud risk assessments .. 9%
Job rotation/mandatory vacation - 9% 2 %
- 7
Rewards for whistleblowers • 4% 16%
Apr il 5, 2022
46%
55%
52%
92%
91%
85%
76%
80%
88%
■ <100 employees
■ 100+ employees
65%
76%
79%
67%
67%
67%
Item #11 Page 41 of 96
Victim Organizations Report to the Nations
-
Internal Control Weaknesses That
Contribute to Occupational Fraud
Various factors can facilitate a perpetrator's ability to commit and conceal an occ upational fraud scheme.
What are the primary internal control weaknesses that
contribute to occupational fraud?
.·················------------· Lack of reporting mechanism. <1% ,/ .-----···············--------- Lack of clear lines of authority, 2% _,, _,,· ___ ,. _________________ _ --··-·········.:~--- Lack of emp loyee fraud education, 3% ·-. Lack of independent checks/audits, 5%
----- -- - Lack of competent personne l in
oversight roles. 6%
------ Other. 6%
SMALL COMPANIES
are more likely to
lack internal controls
MANAGER-LEVEL
PERPETRATORS
are more likely than
other perpetrators to
OVERRIDE EXISTING
CONTROLS
Employees
Managers
15%
22%
Owner /executives 17%
000
000
000
CDID 00
gJgJ ~~
LARGE COMPANIES
are more likely to have
controls overridden
Lack of
interna l
conhols ~
■ <100 employees
POOR TONE AT THE TOP
was the primary risk fac t or in 22% of
all financial statement frauds.
'·._;,c.-1. __ . : . - fl . ,.,
I~ ,I: ...,t T
Asset
misappropriation
Corruption
36 Victim Organizations Repor1 to the Nations
Overri_d~ of 1B
existing
internal contro ls
■ 100+ emp loyees
SOLE PERPETRATORS take advantage of a lack of controls, while schemes invo lving COLLUSION are supported by poor tone at the top and an ability to override contro ls
Lack of
interna l contro ls
Override of existing
interna l controls
Poot tone
at the top
1 perpe trator
2 or more
perpetrators
Background Che cks Run on the
Perpetrators
Althoug h most occ upationa l fraud
perpetrators do not have a crim i
nal history (see Figure 39 on page
48), it is still prudent for organiza
tions to run background checks
(to the extent legally permissible)
during the hiring process to avoid
letting known fraudsters in through
the front door. As noted in Figure
25, however, only approxima tely
half of the victim organ izations
in our study undertook this due
diligence step when hiring the
perpetrator. Interestingly , of the
52% of organizations that did
cond uct a bac kground check, 13%
of them uncovered a red flag in
the perpetrator's backgro und and
proceeded with the decisio n to
hire them anyway.
When running background checks,
organizatio ns mig ht choose to
prioritize different aspects of an
individual's background. Figure
26 shows that, of the background
checks conducted by the victi m
organiza tions in our study, 81%
included a check on the perpetra
tor's employment history and 75%
included a check of the perpetra
tor's crimina l background.
April 5, 2022
FIG. 25 Was a background check run on the perpetrator prior to hiring? Did the background check
reveal existing red flags?
No __ 87%
Yes 13%
FIG. 26 What types of background checks were run on the perpetrator prior to hiring?
Employment history
Criminal checks
Reference checks 56%
Education verification
Credit checks
Drug screening
Other
Item #11 Page 43 of 96
Victim Organizations Report to the Nations
-
-
PERPETRATORS
One of the key goals of our study is to identify the common characteristics ,rnd risk profiles of those who commit occupr1tionr1I frciud. Our survey included seve ral questio ns focused on the fraud perpetrators' job details, basic demographics. prior misconduct, and behavioral warn ing signs. This information was compiled to help
organizations better understand and identify the risks
and red flags of fraud in th eir own workfo rces.
Perpetrator's Position FIG. 27 How does the perpetrator's level of authority The perpet rator's level of au-
relate to occupational fraud?
thority within an organization 41%
tends to strongly correlate with
the size of a fraud. Owners/ex- 35%
ecutives accounted for only 20%
"' of the frauds in our study, but
w
"' <t
the median loss in thos e cases u
(USD 600,000) far exceeded the
LL
0 20%
losses caused by managers and .... z
w
staff- level employees. This is u
a::
consistent with our past studies, w
0. all of which found that losses
tend to rise in tandem with a 3%
fraudster's level of authority .
-Owners/executives are generally Employee Manager Owner/executive Other in a better position to override
•
controls than their lower-level
coun terparts, and they often $60,000
have greater access to an orga-
nization's assets. Both of these $150,000
"' facts might help explain why "' 0
losses attribut able to this group .....
$230,000 z
tend to be so much larger. <t
0 w
::.
$600,000
Apri l 5, 2022 Item #11 Page 44 of 96
Perpetrators Report to the Nations
As seen in Figure 28, the
length of fraud schemes also
tends to rise in correlation with
the perpetrator's autho rity. The
median duration of a fraud
committed by an owner/execu
tive was 24 months, compar ed
to 18 months for schemes
committed by managers and 12
months for those commi tted by
staff-level emp loyees .
Perpetrator's Tenure
FIG. 28 How does the perpetrator 's level of authority relate to scheme duration?
24 months
z
~ 18 months
....
<t
ct
12 months :>
0 z
<t
0 w
:l:
Employee Manager Owner/executive
The longer a fraud perpetra tor works for a company, the more damage that person's scheme is likely to cause, as shown in Figure 29. Those who had been with the victim organization for at least ten years stole a median USD 200,000, which was four times greater than the median loss caused by employees with less than one year of tenure.
FIG. 29 How does the perpetrator 's tenure relate to occupational fraud? 9% <1year $50,000
46% 1-5 years $100,000
22% 6-10 years $190,000
23% >10 years $200,000
PER CE NT O F CASES M ED IAN LO SS
April 5, 2022 Item #11 Page 45 of 96
Perpetrators Report to the Nations
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-
The impact of tenure on fraud losses remains evident even when we contro l for the fraudster's leve l of authority.
In Figure 30 we divided all fraudsters into two groups: those w ho had been with their orga nizations five years or less and those who had been with their organization six years or longer. Next. we compared the med ian loss caused by these two groups at three leve ls of autho rity: owner/executive, manager, and emp loyee.
At every leve l, the long er-tenured fraudste rs caused significantly larger losses .
What this tells us is that longer-tenured
fraudsters do not steal more merely because
they have been promoted over time to higher
levels of authority. Instea d, thei r added
expe rience with their organ izations seems to
improve their skills or abilities related to com
mitting fraud. This might be because they be
come better at ident ifying gaps or weaknesses
in interna l cont rols, because they become
more trusted (and thus are subject to lower
leve ls of review by peers and supervisors), or
because they learn over time how others have
successfu lly committed fraud. Regardless, this
data indicates that the ability to defraud an
organization seems to be something people
improve at with exper ience.
FIG. 30 How does the perpetrator's tenure relate to
median loss at different levels of authority?
Employee
• $100,000
1 $50,000
~6 years
■ sSyears
Manager
$164,000
Owner/executive
$700,000
ME D IAN LOS S
Perpetrator's Department
Departmenr Number of cases Percent of cases Median loss Figure 31 is a heat map showing the Operations 288 15% $72,000 frequency and med ian loss of fraud Accounting 277 14% $200,000 schemes based on the perpetrator' s Executive/upper management 234 12% $596,000 department. This illustra tes the relative Sales 225 11% $94,000 Customer service 175 9% $86,000
risks of occupationa l fraud in the Administrative support 116 6% $76,000 diff ere nt parts of a typica l organization, Finance 101 5% $100,000 which may help anti-fraud profession- Purchasing 96 5% $200,000 als effective ly allocate anti-fraud con- Information technology 69 3% $200,000 trol s and resou rces. For exa mple , t he Facilities and maintenance 60 3% $100,000 execu tive/upper management team Warehousing/inventory 60 3% $85,000 Board of directors 45 2% $750,000
and the accounting department were Marketing/public relations 40 2% $100,000 both associated with high frequency Manufacturing and production 35 2% $275,000 and median loss, which indicate s that Human resources 27 1% $40,000 fraud risks in these areas should be Research and development 14 1% $350,000 care fully addressed in any anti-fraud Legal 13 1% $195,000 prog ram. ·Department s with fewer than 10 cases were omitted April 5, 2022 Item #11 Page 46 of 96
Perpetrators Report to the Nations
FIG. 31 What departments pose the greatest risk for occupational fraud? $750,000
$700,000
$650,000
$600,000
$550,000
$500,000
$450,000
$400,000
$350,000
$300,000
$250,000
$200,000
$150,000
$100,000
$50,000
$0
Manufacturing and production
0 Legal
0 Purchasing
0 0
Information
technology
Facilities and
Marketing/ maintenance Finance
public relations O O 0
0 0
Warehousing/inventory
Human resources
0% 2% 4%
LESS R I SK
0 Administrative
support
6%
April 5, 2022
8% 10% 12% 14% 16%
MORE R I SK
Item #11 Page 47 of 96
Perpetrators Report to the Nations
-
-
Schemes Based on Perpetrator 's Department
The eight departm ents shown in Figure 32 accoun ted for 76% of all occupa tional frauds in our study. The spe cific fraud schemes used by perpe trators in these departments are presented to help organizatio ns assess risk and deve lop effective anti-fraud contro ls within these high-risk areas. Boxes are shaded from yellow to red, with darker boxes indicating higher-freq uency schemes for each department.
FIG. 32 What are the most common occupational fraud schemes in high-risk departments? DEP A RTMENT Cases
288
277
234
225
175
116
101
96 LESS RIS K
April 5, 2022
Perpetrators Report to the Nations
15%
5%
>c:
"' ~
..!!!
.s;;
VI
ro u
5%
8%
8%
10%
4%
"O C:
ro .s;;
C:
0 .s;;
VI
ro u
10%
11%
12%
4%
C:
"' E >ro
0. "O Cl
C: C:
ft)·=
-'<"' u 0.
6~
5%
2%
C:
0 :g_
2 8
l!l
C:
"' E
~ :::,
D
E
-~
el
C:
"' 0.
)(
LU
6%
14%
14%
7%
7%
8%
1%
8%
14%
7%
.s;;
VI
B
C:
0 z
15%
11%
-
9%
12%
12%
-
Item #11
8%
12%
2%
2%
9%
9%
2%
Cl
C:
.E
E
:i:
"'
3% 9%
5%
-
3% 10%
'
4% 10%
2%
-
3% 12%
3% 8%
0% 4%
MORE RISK
Perpetrator 's Gender
As shown in Figure 33, more than 70% of
the perpetrato rs in our study were males.
Men also caused a significantly larger
median loss (USD 150,000) than wome n
(USD 85,000). This is consis tent with our
past studies, all of whic h have found a sig
nificant gender dispa rity in fraud loss and
frequency.
Perpetrator's Gender Based on Region
There was a large variance in the gender
distribution of occupatio nal fraudsters
based on geograp hic regio n. Figure
34 shows that in the United States and
Canada, males accounted for only 59% of
occupational fraud perpe trators, whereas
in Southern Asia and the Middle East and
North Africa, men committed more than
90% of occupational frauds.
FIG. 33 How does the perpetrator's
gender relate to occupational fraud?
"' w
"' <(
u
u.
0 .... z
w
u
"' w
a.
VI
"' 0 ..,
z
<(
0 w
:E
72%
Male
28%
I
Female
$85,000
-
Position of Perpet rator Based on Gender
We examined gender distribution and median loss data based on the perpetrator 's level of authority, as shown in Figur e 35. At all levels of authority (employ ee, manager, and owner/executive), males committed a much larger percentage of frauds than women did. Male owners/executives and managers also accounted for much larger losses than their female counterparts. This was particularly true at the owner/executive level, where the median loss caused by men (USD 795,000) was more than four times larger than the median loss caused by women (USD 172,000). At the employ ee level, however, losses caused by males and fema les were equal.
April 5, 2022
Perpetrators Report to the Nations
FIG. 35 How do gender distribution and median loss vary based on the perpetrator's level of authority?
VJ
w
VJ
<(
u
u.
0 >z w
u
"' w
a.
• VJ
VJ
0 ...,
z
~
0 w
:::;
64%
Employee
--$60,000 $60,000
■ Male ■ Female
86%
73%
Manager Owner/executive
$173,000 $172,000
$795,000
Item #11 Page 50 of 96
Perpetrator's Age
The age distribut ion of fraud perpe trators in our study was bell-shaped, with 53% of frauds ters between the ages of 31 and 45. Median losses, on the other hand, tended to rise along with the age of the perpetra tor. Those in the 56 to 60 and 60+ age ranges together accounted for less than 10% of all cases . but they cause d median losses of USD 400,000 and USD 575,000 , respect ively, which were by far the highest losses in any age range.
April 5, 2022
(/)
UJ
(/)
cl:
u
LL
0 I-
z
UJ
u
0:
UJ
Q.
(/)
(/)
0 ...J
z
cl:
0 UJ
~
FIG. 36 How does the perpetrator's age relate to occupational fraud? 19%
18%
16%
14%
10%
8%
6%
4%
3%
<26 26-30 31-35 36-40 41-45 46-50 51-55 56-60 >60
$20,000
$65,000 $80,000
$150,000 $141,000
$213,000 $207,000
$400,000
$575,000
Item #11 Page 51 of 96
Perpetrators Report to the Nations
-
-
Perpetrator's Education Level
FIG. 37 How does the perpetrator 's education
level relate to occupational fraud?
"' w
"' " u
u..
0 ... z w
u
"' w
Q.
"' "' 0
-'
z
" 0
w
::E
22%
High school
graduate or less
$80,000
14%
I
Some
university
$150,000
49%
15%
I
University Postgraduate
degree degree
$175,000
$200,000
We also found a correlation between the per
petrator's education level and median loss.
Figure 37 shows that fraudsters with a high
schoo l deg ree or less caused a median loss of
USD 80,000, while those with a postg raduate
degree caused a media n loss of USO 200,000.
Genera lly, we would expect losses to correlate
with educatio n beca use those with higher levels
of educat ion tend to hold higher positio ns of
authority and might also have greater tech nical
capab ilities for comm ittin g fraud.
April 5, 202 2
Perpetrators Report to the Nations
LEVEL OF AUTHORITY
Most occup<1t1011al f1c1uds are
corn1111tted by ;;rnployn·-IPvel 01
lllilllilge , -levP I pPI SOllllPI
But f l ilUclS l)y OW11('15/('XPCUtives
ill(' rnucll mo l l' t1<1rrnful.
f'I ;,i( IN I ii , /,'-- c.,
HIGH-RISK DEPARTMENTS
Operations
Accounting
Executive/upper management
Sales
Customer service
Administrative support
Finance
Purchasing
15%
14%
12%
11%
9%
6%
5%
5%
MEDIAN LOSS
$200,000
C®J.
MEDIAN LOSS
$100,000
C®l
5 YEARS 6 YEARS
OR LESS OR MORE
♦,
Profile of a Fraudster
Our study includes perpetrator data from more than
2,000 fraud cases, which can help organizations assess
fraud risk in their own workforces.
TENURE ,--------
Occupational fraudsters
who had been with
their organizations at
least 6 years caused
TWICE the loss of
GENDER
Males committed
more frauds and caused
higher losses.
less-tenured employees.
0 $150,000
Median loss
0 2a'!!\ $85,000
Median loss OF CASES \._
FEMALE
/ 0
EDUCATION
64%
of occupational
fraudsters had a
university degree
or higher.
No university degree
Uni vers ity degree or highe r
$195,000 ~Jf~AN
Older fraudsters
caused much larger
median losses
40-54
AGE
Pc-,petrators Report !o the Nations 47
-
Collusion by Multiple
Perpetrators
Figure 38 shows that 51% of
frauds in our study were com
mitted by two or more fraudsters
working in collusion. Losses
tended to increase with multi-
ple perpetrators-particularly
when three or more individuals
conspired to commit fraud . One
reason collusive frauds might be
more costly is that multiple fraud
sters working together might
be better able to underm ine the
systems of separated duties and
independent verification that are
at the heart of many anti-fraud
controls.
Perpetrator's
Criminal Background
Our past studies have shown
that most occupational fraudsters
have no prior crimina l history
before they commit their crimes,
and our current data reinforces
those findings. Only 4% of the
perpetrato rs in this study had
been previously convicted of a
fraud-re lated offense. It should
be noted that 41% of the occu
pational frauds in our study were
never reported to law enforc e
ment (see Response to Fraud
infographic on page 55), which
is also cons istent with our past
research. This indicates that the
true numb er of repeat offenders
is probably higher than what can
be determined through criminal
records.
April 5, 2022
Perpetrators Rep0rt to the Nations
FIG. 38 How does the number of perpetrators in a scheme relate to occupational fraud?
.. •
ONE
PERPETRATOR
- $90,QQQ~~ian
TWO
PERPETRATORS
- $105,QQQ ~itan
THREE OR MORE
PERPETRATORS
$350,QQQ ~:~ian
FIG. 39 Do perpetrators tend to have prior fraud convictions? ■ Never charged or convicted (89%)
Charged, but not convicted (7%)
■ Had prior convictions (4%)
Item #11 Page 54 of 96
Perpetrator's Employment History
Figure 40 shows that 86% of fraudsters had never
been punished or terminated for fraud-related
cond uct prior to the crimes reported in this study.
As with the criminal conviction data in Figure 39,
this tends to indicate that most occupational
fraudsters are first-time offen ders. But also like the criminal convictio n data, there is reason to believe
that this data might understate the true number
of repeat fraudsters. According to Figure 44 on
page 54, 5% of fraudsters received no internal
punishment, 10% were permitted to resign, and 11%
signed private settlement agreements with the vic
tim organizations. This suggests that a significant
number of occupationa l fraudsters will have no
record of employmen t-related discipline even after
having been caught by their employers.
FIG. 40 Do perpetrators tend to have prior
employment-related disciplinary actions for fraud?
■ Never punished or terminated (86%)
Previously terminated (8%)
■ Previously punished (8%)
April 5, 2022
Behavioral Red Flags
Displayed by Perpetrators
The typical occupational fraud scheme lasts
14 months before it is detect ed; during this
time, the perpetrator will often display certain
behavioral traits that tend to be associated
with fraudulent conduct. Figure 41 on pg. 50
shows the relative frequency of 17 common
behavioral red flags. Significantly, all of these
red flags had been identified by someone in
the respective victim organizations before the
frauds were detected .
At least one behavioral red flag was present
in 85% of the cases in our study, and multi
ple red flags were present in 49% of cases.
The seven most common red flags were: (1)
living beyond means; (2) financ ial difficulties;
(3) unusually close association with a vendor
or customer; (4) excessive control issues or
unwillingness to share duties; (5) unusual irri
tability, suspiciousness, or defensiveness; (6)
a general "wheeler-dealer" attitude involving
shrewd or unscrupulous behavior; and (7) re
cent divorce or family problems. At least one
of these seven red flags had been identified
before the perpetrator was caught in 76% of
all cases.
Item #11 Page 55 of 96
Perpetrators Report to the Nations
FIG. 41 How often do perpetrators exhibit behavioral red flags? Living beyond means
Financial difficulties
Unusually close association with vendor/customer
No behavioral red flags
Control issues, unwillingness to share duties
Irritability, suspiciousness, or defensiveness
"Wheeler-dealer" attitude
Divorce/family problems
Addiction problems
Complained about inadequate pay
Refusal to take vacations
Excessive pressure from within organization
Past employment-related problems
Social isolation
9%
8%
7%
7%
6%
6%
Complained about lack of authority - 5%
Past legal problems - 5%
Excessive family/peer pressure for success - 4%
Instability in life circumstances - 4%
Other - 4%
April 5, 2022
Perpetrators Report to the Nations
15%
15%
13%
13%
12%
19%
26%
Item #11
Non-Fraud-Related Misconduct
by Perpetrators
In order to determine if there is a corre lation between fraud and other forms of workplace violations, we
asked survey respondents whet her the fraudster had
been engaged in non-fraud-related miscond uct prior
to or during the tim e of the frauds. Figure 42 shows
that 45% of occupationa l fraudsters had engaged in
some type of non-fra ud-related misconduct. The most
common was bullyin g or intimidation (20% of cases),
followed by excessive absenteeism (13%) and exces
sive tardiness (12%).
FIG. 42 Do fraud perpetrators also
engage in non-fraud-related misconduct?
Which forms of non-fraud misconduct are most
common among fraud perpetrators?
Bullying or intimidation
20%
Excessive absenteeism
13%
Excessive tardiness
12%
Excessive Internet browsing
8%
Other
4%
Sexual harassment
- 3%
Visiting inappropriate internet sites
- 2%
April 5, 2022
Human Resources-Related Red Flags
In some circumstances, negative events surroundin g
a person's conditio ns of employment (such as poor
performance evaluations, loss of pay or benefits,
fear of job loss, etc.) can cause financia l stress or
resentme nt towa rd the employer, which might play
a role in the decision to comm it fraud. We refer to
these events as human resources -related red flags.
As Figure 43 shows, 42% of fraudsters had experi
enced some form of HR-related red flags prior to or
during the time of their frauds. The most common of
these were negative performance evaluatio ns (13% of
cases) and fear of job loss (12%).
FIG. 43 Do fraud perpetrators experience negative
HR-related issues prior to or during their frauds?
Which HR-related issues are most commonly
experienced by fraud perpetrators?
Poor performance evaluations
Fear of job loss
Denied raise or promotion
Actual job loss
Cut in pay
4%
Cut in benefits
4%
Other
3%
Demotion
- 2%
Involuntary cut in hours
- 2%
6%
Item #11
13%
12%
10%
Perpetrators Report to the Nations
-
Behavioral Red Flags of Fraud
Recognizing the behaviora l clues disp layed by fraudsters can help organizations more effectively detect fraud and minimize their losses.
7 KEY WARNING SIGNS
42 1
%
... :·· o!\ \ ~JJ .'.
19% 15%
Living beyond
means
Financia l
difficulti es
Unusually clo se
association with
vendor/customer
Control issues,
unwillingness
to share dutie s
LIVING BEYOND MEANS
50% ,
ii ' . '; .l'v-- .
'L• t~)
:c' ? '. :_, ,: .... .
13%
0/. OF ALL FRAUDSTERS
70 displayed at least one
BEHAVIORAL RED FLAG
whi le committing their crimes .
13% 12%
Irritability.
suspiciousness,
or defensiveness
"Wheeler-dealer"
attitude
Divorce /family
prob lems
Living beyond
means
A fraudster living beyond
his or her means is the
most common red flag by
a sizable margin.
This has ranked as the
#1 red flag in every study
since 2008 .
30%
20%
10% 1
' '----------- -----
'08 ·10 ·12 ·1a ·20
52 Perpetrators Report to the Nittions
Financial difficulti es
Unusually close c1ssociJtion v✓ ith vondor.·customer
Control issues. unwillingness to shc1re duties
Irritability, suspiciou sness, or defensiveness
"Wheeler-dealer" attitude
Divorce/family problems
~- CLASSIFYING RED FLAG BEHAVIORS
In 52% of cases, the fraudster exhibited red flags
connected to their work duties .
Unusually close association with ven dor/custom er
Control issues, unwi llingness to share duties
Irritability, suspiciousness, or defensiveness
13 .
"Wheeler-dealer" attitud e
Complained abou t inadeq uate pay
Refusal to take vacatio ns
l
ization ation : Excessive pressure from within organization l
! Past employ ment-re lated problems
()
! Complained about lack of aut hority
In 63% of cases, the fraudster exhibited red flag behavior associated with his or her Rersonal life.
: Living beyond means
i Financial difficu lties i Financial difficu lties
i Divorc e/family probl ems
i Addiction problems
: Social isolation
: Past legal probl ems
- s : Instability in life circumstances
-4
: Excessive family/peer pressure for success
- 4
or success success
JOB PERFORMANCE
ASA
WARNING SIGN
A fraud perpetrator's job
performanc e will often
suffer while the scheme is
taking place . Each of
these performance-related
issues were cited in at least
10% of cases .
'a • 13%
POOR PERFORMANCE EVALUATIONS
13%
EXCESSIVE EXCESSIVE ABSENTEEISM
FEAR OF FEAR OF JOB LOSS
12%
EXCESSIVE TARDINESS
gilv, 10%
DENIED RAISE OR PROMOTION
Perpetrators Report to the Nu\ions 53
Internal Action Taken
Against Perpetrator
Once an interna l fraud is sub
stantiated, the victim organ ization
must decide what to do with the
perpe trator. Termination was by
far the most common response
to fraud, but one-t hird of cases
ended with a different interna l
result. Many cases resulted in
relatively light punishments, where
the perpetrator had already left
the organization (11%), resigned
(10%), or received no pun ishment
at all (5%).
FIG. 44 How do victim organizations punish fraud perpetrators? Termination
66%
Perpetrator was no longer with organization
-
11%
Settlement agreement
-
11%
Permitted or required resignation
-
10%
Probation or suspension
-
9%
No punishment
•
5%
Other
•
5%
INTERNAL PUNISHMENT
80% OF PERPETRATORS
• • • • 0 ................ ~
RECEIVED SOME
PUNISHMENT
Owners/executives are less likely
to receive punishment
TERMINATION 1or FRAUD
45%
Managers
Employees
Received NO PUNISHMENT
Owners /executtves
an agers
Employees 2%
Response to Fraud
Orga nizations can respond to fraud
interna lly, thro ugh civil litigat ion, and by
referr ing the case to law enforcement.
These are the results of such efforts.
CIVIL LITIGATION
MEDIAN LOSS ~ $
resulting in ~
CIVIL LITIGATION . 28%
of cases resulted in
civil litigation .
$400,000
·-----------------------------------------------------·
CRIMINAL PROSECUTION
MEDIAN LOSS ~
in cases ✓
referred to $
LAW ENFORCEMENT
$200,000
59%
of cases were
referred to law
enforc ement
·-----------------------------------------------------· ' + Of th ese cases:
56% JJleaded guilty/no contest
23% were convictea at trial
12% were declined prosecution
Case Results Report to the Nations 55
-
Reasons for Not Referring Cases to Law Enforcement
As seen on the Response to Fraud infograp hic on page 55, many vict ims never repo rt their cases to law enforceme nt. We asked respondents in those cases to tell us why. Figure 45 shows a timeline comparison of victims' reasons for non-refe rral; this year's repo rt is the first time that fear of bad publicity was not the primary reason. Instead, 46% of vict ims deter mined that their interna l discip line was sufficient. Coupled with the find ings that private settlemen ts and civil suits have also risen, it appears there may be a general trend of organi zations seeking to reso lve fraud cases internally or privately rather than throug h the criminal just ice system.
FIG. 45 Why do organizations decline to refer cases to law enforcement? Fear of bad publicity
Internal discipline sufficient
Private settlement
Too costly
Lack of evidence
Civil suit
Perpetrator disappeared
2012
Recovering Fraud Losses
2014 2016 2018
For many victim organizations, recovering losses is the key concern once fraud has been detected. However, most organizations (54%) in our study did not recover any of their losses. We also analyzed whether there were regional differences in victim organizations' success in recovering some or all fraud losses, and our findings suggest that recovering lost assets might be more challenging in some regions than others. As shown in Fig- ure 46, Eastern Europe and Western /Centra l Asia was the most difficult regio n for recove ring fraud losses, with 61% of organizations recovering nothing, followed closely by Latin America and the Caribbean (60%). Western Europe and Southern Asia were the only regions where more than half of victims made at least some recovery of fraud losses.
April 5, 2022 Item #11
Case Results Report to the Nations
50%
40%
30%
20%
10%
0%
2020
FIG. 46 How does the recovery of fraud losses vary by region? FIG. 47 How does the type of scheme relate to fines
incurred by victim organizations?
19%
U)
w
U) 10% < 9%
I
u
u.
I
0 f-
z w
u
"' w
0..
Asset Corruption Financial
misappropriation statement fraud
U)
I
w
z ;;: $50.000 z <
0 w
::E
$150.000
$221,000
April 5, 2022
Fines Against Victim Organizations
Beyond losses directly caused by occupationa l fraud,
some victims also receive fines from authorities re
sulting from the fraud, such as when the victim failed
to take sufficient steps to prevent bribery or violated financial reporting requirements. Our data indicates
that financial statement fraud schemes are the most
likely to result in a fine against the victim organization (19% of cases); these cases also result in the largest
median fine (USO 221,000). While fines resulting
from corruption and asset misappropriation scheme s
occurred at a similar rate (10% and 9%, respect ively), the median fine in corruption cases was three times
higher (USO 150,000).
Item #11 Page 63 of 96
Case Results Report to the Nations
-
METHODOLOGY
TIH· 2020 Report to the Not1ons is b,1secl 011 the results of ti1c 2019 G/o/Jo/ Fraud Swvey. ,111 orili1H' ,,urvcy o:v.'11ccl to 51.608 Certified F1,1ucJ Ex,1:11i11c1 s r,CFb) f10;11 July 201c, to S:·ptc·m:wr 2019. As pc,1t of tiw survey. rcspo11cl011ts v101c ,l",kccl to f)toviclc il r1 .111,1t \'C' clc-sc1:pt1011 of tl1c s,11glr, lc11gc,st occupc1tio11c1I irm1cl c,1sc tllcy l1c1ci irwcsti~Jcrtccl s;11u· J,111L1<11y 2018. A:_1clitio1Hlly. ,11tr_•1 c,111pl!::ti11g ll'L' su1vc:y till' fir-:,l tirlll' 11•:-,por1~:c11ts :;, le· prov 1cJeci tlP optio11 to sul)1nit i11fo1 m,1tio11 211)out il seco11cl u,s, 0 Respo11cle11ts were tl1cn present
ed wrth 77 questions r eg,1r ding
the p,1rticul,11 dct,1rls of the fr,1ud
C,7SC. 111cluclrnq infornlil tion ilOOlll
the perpctr,1tor. tl1c victim org,111i
Zi1t1011. ,111d 1110 metl1ods of fr c1ud
c111ployccl. ,1s v1cll c1s fraud trends
m gc'ncli1 !. (Respondents wcr c not
,iske>cl to ide>ntify the perpetrc1tor or
tl1c victim) We received 7.516 total
responses to tile survey. 2.504 of
v1l11cl1 v1ere us,1blc for purposes
of this report. The dc1t,1 contAinecJ
l1e1cin is based solely on the in
forrn,1tion proviclcd in these 2.504
survey responses.
58 Methodology!,•,;, ... :·,"' ll •'. ·,
Cases submitted were required to
meet the following four criteria:
1. The case must have involved occupational
fraud (defined as fraud committed by a
person against the organization for which
they work).
2. The investigation must have occurred be
tween January 2018 and the time of survey
participation.
3. The investigation must have been
complete at the time of survey
participation.
4. The respondent must have been reasonably
sure the perpetrator(s) was (were) identified.
Analysis Methodology
Percentages
In calculating the perce ntages discussed throughout
this report, we used the total number of complete and
relevant responses for the question(s) being analyzed.
Specifica lly, we excluded any blank responses or
instances whe re the participant indicated that they did not know the answer to a question. Consequently, the
total number of cases included in each analysis varies.
In addit ion, several survey questions allowed partici pants to select more than one answer. Therefore, the
sum of percentages in many figures throughout the
report exceeds 100%. The sum of percentages in other
figures might not be exactly 100% (i.e., it might be 99% or 101%) due to rounding of individual category data.
A
---------
April 5, 2022
Loss Amount s
Unless otherwise indicated, all loss amounts
discussed throughou t the report are calculated
using median loss rather than mean, or aver
age, loss. Using median loss provides a more
conservative-and we believe more accurate
picture of the typical impact of occupational
fraud schemes. The statistical appendix to this
report (see pages 78-81) provides a more ho
listic view of the losses in our study, reflecting
quartiles and average loss amounts for numer
ous categories explored th roughout the report .
To normalize the loss amounts reported to us
and ensure that cases with extremely large
losses were not identifiab le, all average and
total loss amounts reported were calculated
using loss data that was winsorized at 5% (i.e.,
assigned all cases in the top 2.5% and bottom
2.5% the same value as the 97.5th percent ile
and 2.5th percentile, respectively). Additionally ,
we excluded median and average loss calcula
tions for categories for which there were fewer
than ten responses.
Because the direct losses caused by financial
statement frauds are typically spread among
numerous stakeholders, obtaining an accurate
estimate for this amount is extremely difficult.
Consequent ly, for schemes involving financial
statement fraud, we asked survey participants
to provide the gross amount of the financial
statement misstatement (over- or under-state
ment) involved in the scheme. All losses
reported for fina ncial statem e nt frauds through
out this report are based on those reported
amounts.
Item #11 Page 65 of 96
Methodology Repon to the Nations
-
-
Survey Participa nts
To provide context for the survey responses and to understand who investigates cases of occ upationa l fraud , we asked respo ndents to provide certain information about the ir professional experie nce and qualifica tions.
Primary Occupation
As note d in Figure 48,
39% of survey respon
dents indicate d that their
primary occupation is as
a fraud examiner/inves
tigator, followed by 21%
who indica ted they are
internal auditors.
April 5, 2022
Methodology Report to the Nations
FIG. 48 What was the primary occupation of survey participants? Fraud examiner/investigator
39%
Internal auditor
21%
Accounting/finance professional
8%
Law enforcement
7%
Compliance and ethics professional
5%
Risk and controls professional
-
4%
External/independent auditor
-
3%
Consultant
-
3%
Other
-
3%
Corporate security and loss prevention
-
3%
Attorney
■ 1%
IT /computer forensics specialist
■ 1%
Bank examiner
■ 1%
Private investigator
■ 1%
Educator
<1%
Item #11 Page 66 of 96
Nature of Fraud Examination Role
More than half of the survey re
sponden ts work in-house and
condu ct fraud-related engagemen ts
on behal f of a single company or
agency . In contra st, 26% work for a
professiona l services firm that con
ducts fraud-rel ated engag ements
on behalf of client organizations ,
and 19% work in law enforcement
and conduct fraud investigation s of
oth er parti es und er their agency' s
authority .
Professional Experience
The CFEs who participa ted in our
survey had a median 11 years of fraud
examination experien ce, with 30%
having more than 15 years of expe
rience (see Figure 50). Additionally,
as Figure 51 shows, one-quarter of
survey participants have investigated
more than 20 cases of fraud during
the last two years, while 42% investi
gated five or fewe r cases during that
period .
April 5, 2022
16-20 cases (60/,)
11-15 cases (8%)
6-10 cases (19°/,)
,;5 cases (42%)
FIG. 49 What was the professional role of the survey participants? In-house
examiner
Other
2%
Law
enforcement
Professional
services firm
FIG. 50 How much fraud examination experience did
survey participants have?
21%
s 5 years
28%
20%
17%
13%
I
6-10 years 11-15 years 16-20 years >20 years
FI G. 51 How many fraud cases have survey
parti cipant s investigated in the past two years?
Item #11 Page 67 of 96
Methodology Report to the Nations
-
FIG. 52 What are the most common occupational FIG. 53 How is occupational fraud initially detected fraud schemes in the Asia-Pacific region? in the Asia-Pacific region? Corruption Tip
51% 44%
Noncash Internal audit
18% 15%
Expense reimbursements Management review
16% 11%
Billing Other
7%
15% External audit
Financial statement fraud
-
7%
14% Account reconciliation
Cash on hand
-
5%
11% By accident
Payroll •
3%
-
8% Surveillance/monitoring
Skimming •
3%
-
8% IT controls
■ 2%
Check and payment tampering Document examination
-
7%
■ 2%
Cash larceny Confession
-
4% ■ 2%
Register disbursements Notification by law enforcement
I 2% I 1%
-
April 5, 2022
Asia.Pacific Report to the Nations
Item #11 Page 68 of 96
FIG. 54 What anti-fraud controls are the most common in the Asia-Pacific region?
Control Percent of cases
External audit of financial statements 93%
Code of conduct 88%
Internal audit department 84%
Management certification of financial statements 80%
Management review 78%
External audit of Internal controls over financial reporting 75% Hotline 72%
Independent audit committee 71%
Fraud training for employees 64%
Fraud training for managers/executives 62%
Anti-fraud policy 59%
Employee support programs 50%
Dedicated fraud department, function, or team 50%
Formal fraud risk assessments 45%
Proactive data monitoring/analysis 43%
Surprise audits 36%
Job rotation/mandatory vacation 32%
Rewards for whistleblowers 15%
FIG. 55 How does the perpetrator's level of authority
relate to occupational fraud in the Asia-Pacific region? C/1
w
C/1
< u
u.
0 ... z w
u
"' w
Q.
C/1
C/1
0 -'
z
<
0 w
:I:
April 5, 2022
40%
Employee
-
$73,000
35%
21%
Manager Owner/
executive
$200.000
$1,200,000
FIG. 56 Cases by country in the
Asia-Pacific region
Country Number of cases
Australia 29
China 33
Hong Kong 11
Indonesia 36
Japan 8
Laos
Macau
Malaysia 19
Myanmar (Burma)
New Zealand 3
Philippines 24
Singapore 17
South Korea 5
Taiwan 2
Thailand 6
Vietnam 2
Total cases:
MEDIAN LOSS:
USO 195,000
Item #11 Page 69 of 96
Asia-Pacific Report to the Nations
-
-
REGIONAL FOCUS
EASTERN EUROPE
AND WESTERN/
CENTRAL ASIA
FIG. 57 What are the most common occupational fraud FIG. 58 How is occupational fraud initially schemes in Eastern Europe and Western/Central Asia? detected in Eastern Europe and Western/ Central Asia?
Corruption Tip
61%
Noncash Internal audit
22%
Billing Management review
17%
Other
Cash on hand
13% Surveillance/monitoring
Financial statement fraud
-10% Document examination
Skimming
--
8% Account reconciliation
Expense reimbursements
--
7% Notification by law enforcement
■ Cash larceny
-
7% IT controls
■ Payroll External audit
-
5%
■
Check and payment tampering By accident
■ 4% ■
Register disbursements Confession
I 1% I
Apri l 5, 2022 Item #11 Page 70 of 96
Eastern Europe and Western/Central Asia Report to the Nations 51%
14%
9%
6%
4%
3%
3%
2%
2%
2%
2%
1%
FIG. 59 What anti-fraud controls are the most common in Eastern Europe and Western/Central Asia?
Control Percent of cases
External audit of financial statements 89%
Code of conduct 87%
Management review 84%
Internal audit department 80%
Management certification of financial statements 78%
Hotline 76%
Anti-fraud policy 73%
Independent audit committee 72%
External audit of internal controls over financial reporting 71% Fraud training for employees 67%
Fraud training for managers/executives 66%
Dedicated fraud department, function, or team 58%
Formal fraud risk assessments 51%
Surprise audits 45%
Proactive data monitoring/analysis 42%
Employee support programs 29%
Job rotation/mandatory vacation 29%
Rewards for whistleblowers 9%
FIG. 60 How does the perpetrator's level of authority
relate to occupational fraud in Eastern Europe and
Western/Central Asia?
If)
w
If)
<{
u
u..
0 1-
z w
u
a:
w
a.
If)
If)
0 ..J
z
<{
0 w
~
34%
Employee
$49,000
April 5, 2022
37%
26%
Manager Owner/
executive
$150,000
$454,000
FIG. 61 Cases by country in Eastern
Europe and Western/Central Asia
Country Number of cases
Albania
Azerbaijan
Bosnia and Herzegovina
Bulgaria 2
Czech Republic 5
Estonia
Georgia
Hungary 5
Kazakhstan 4
Kosovo 2
Lithuania
Moldova
North Macedonia 2
Poland 6
Romania 9
Russia 13
Serbia 14
Slovakia 3
Slovenia 4
Tajikistan
Turkey 13
Ukraine 4
Uzbekistan
Total cases:
MEDIAN LOSS:
USO 133,000
Item #11 Page 71 of 96
Eastern Europe and Western/Central Asia Report to the Nations -
-
REGIONAL FOCUS
LATIN AMERICA AND
THE CARIBBEAN
FIG. 62 What are the most common occupational fraud FIG. 63 How is occupational fraud initially schemes in Latin America and the Caribbean? detected in Latin America and the Caribbean? Corruption Tip
51%
Noncash Internal audit
23%
Financial statement fraud Management review
19%
Billing Notification by law enforcement
18%
-Skimming External audit
13%
-Expense reimbursements Other
10% ■
Cash on hand IT controls
10% ■
Payroll By accident
9% ■
Check and payment tampering Account reconciliation
8% ■
Cash larceny Document examination
8% I
Register disbursements Confession
•
4% I
April 5, 2022 Item #11 Page 72 of 96
Latin America and the Caribbean Report to the Nations
55%
12%
9%
5%
4%
3%
3%
3%
3%
2%
1%
FIG. 64 What anti-fraud controls are the most common in Latin America and the Caribbean?
Control Percent of cases
External audit of financial statements 88%
Code of conduct 88%
Internal audit department 81%
Management certification of financial statements 72%
Hotline 72%
External audit of internal controls over financial reporting 71% Independent audit committee 67%
Management review 65%
Fraud training for employees 58%
Anti-fraud policy 56%
Fraud training for managers/executives 54%
Dedicated fraud department, function, or team 46%
Employee support programs 45%
Formal fraud risk assessments 44%
Surprise audits 40%
Proactive data monitoring/analysis 26%
Job rotation/mandatory vacation 16%
Rewards for whistleblowers 9%
FIG. 65 How does the perpetrator's level of authority
relate to occupational fraud in Latin America and the
Caribbean?
Vl
w
Vl
-,:
u
u.
0 ....
z w
u
"' w
a.
Vl
Vl
0 ..J
z
-,:
0 w
::;
April 5, 2022
30%
Employee
-$90,000
46%
Manager
$250,000
20%
Owner/
executive
$800,000
FIG. 66 Cases by country in Latin
America and the Caribbean
Country Number of cases
Argentina 10
Bahamas 5
Barbados
Brazil 22
Chile 2
Colombia 10
Costa Rica 4
Cura~ao
Dominican Republic
Ecuador
Grenada 2
Haiti
Jamaica 3
Mexico 23
Peru 6
Saint Vincent and the Grenadines
Suriname
Trinidad and Tobago 5
Venezuela 2
Total cases:
MEDIAN LOSS:
USO 200,000
Item #11 Page 73 of 96
Latin America and the Caribbean Report to the Nations
-
-
REGIONAL FOCUS
MIDDLE EAST
AND NORTH
AFRICA
FIG. 67 What are the most common occupational fraud
schemes in the Middle East and North Africa?
Corruption
Noncash
Skimming
Cash on hand
Cash larceny
Expense reimbursements
Billing
Financial statement fraud
-Payroll
-Check and payment tampering
-Register disbursements
I
April 5, 2022
Middle East and North Africa Report to the Nations
52%
19%
16%
12%
9%
8%
8%
7%
5%
4%
2%
FIG. 68 How is occupational fraud initially
detected in the Middle East and North Africa?
Tip
46%
Internal audit
17%
Management review
9%
Other
7%
Account reconciliation
-
6%
By accident
-
4%
External audit
-
3%
Document examination
-
3%
IT controls
■ 2%
Surveillance/monitoring
I 1%
Notification by law enforcement
I 1%
Confession
I 1%
Item #11 Page 74 of 96
FIG. 69 What anti-fraud controls are the most common in the Middle East and North Africa?
Control Percent of cases
External audit of financial statements 88%
Internal audit department 87%
Code of conduct 84%
Management certification of financial statements 83%
External audit of internal controls over financial reporting 74% Management review 72%
Independent audit committee 72%
Hotline 72%
Fraud training for managers/executives 58%
Surprise audits 55%
Anti-fraud policy 55%
Fraud training for employees 55%
Dedicated fraud department, function, or team 46%
Formal fraud risk assessments 45%
Proactive data monitoring/analysis 41%
Employee support programs 34%
Job rotation/mandatory vacation 33%
Rewards for whistleblowers 17%
FIG. 70 How does the perpetrator's level of authority
relate to occupational fraud in the Middle East and North Africa?
50%
38%
VI
w
VI
<t
u
u.
0 I-
z w
u 12% er: w
a.
Employee Manager Owner/
executive
-$98,000
VI
VI
0 .J
z $300,000
<t
0 w
~
April 5, 2022 $600,000
FIG. 71 Cases by country in the Middle
East and North Africa
Country Number of cases
Bahrain 5
Cyprus 11
Egypt 6
Iraq 3
Israel
Jordan 4
Kuwait 9
Lebanon 4
Morocco 3
Oman 5
Qatar 5
Saudi Arabia 23
Tunisia 2
United Arab Emirates 46
Total cases:
MEDIAN LOSS:
USO 100,000
Item #11 Page 75 of 96
Middle East and North Africa Report to the Nations
-
FIG. 72 What are the most common occupational fraud FIG. 73 How is occupational fraud initially schemes in Southern Asia? detected in Southern Asia?
Corruption Tip
76% 48%
Noncash Internal audit
23% 18%
Billing Document examination
6% 17%
Financial statement fraud Management review
5%
12% Notification by law enforcement
Expense reimbursements
-
4%
-
10% Surveillance/monitoring
Skimming
-
4%
-
8% Other
Payroll
-
4%
■ 4% IT controls
Cash larceny
-
3%
■ 3% External audit
-
3%
Cash on hand Account reconciliation
I 2%
-
3%
Register disbursements
I 1%
By accident
■ 2%
Check and payment tampering Confession
I 1% I 1%
-
April 5, 2022
Southern Asia Report to the Nations
Item #11 Page 76 of 96
FIG. 74 What anti-fraud controls are the most common in Southern Asia?
Control Percent of cases
External audit of financial statements 88%
Management certification of financial statements 86%
Internal audit department 86%
Code of conduct 81%
External audit of internal controls over financial reporting 76% Management review 72%
Independent audit committee 70%
Hotline 66%
Anti-fraud policy 64%
Fraud training for managers/executives 55%
Fraud training for employees 51%
Employee support programs 43%
Surprise audits 43%
Dedicated fraud department, function, or team 36%
Formal fraud risk assessments 35%
Proactive data monitoring/analysis 34%
Job rotation/mandatory vacation 29%
Rewards for whistleblowers 20%
FIG. 75 How does the perpetrator's level of authority
relate to occupational fraud in Southern Asia?
Vl
w
Vl
<(
u
u..
0 t-
z
UJ
u
0:
UJ
a.
Vl
Vl
0 ~
z
<(
0 UJ
:E
23%
Employee
$28,000
April 5, 2022
42%
Manager
$117,000
31%
Owner/
executive
$575,000
FIG. 76 Cases by country in Southern Asia
Country Number of cases
Afghanistan 3
Bangladesh 4
India 77
Nepal
Pakistan 15
Sri Lanka 3
Total cases:
MEDIAN LOSS:
USO 117,000
Item #11 Page 77 of 96
Southern Asia Report to the Nations
-
FIG. 77 What are the most common occupational fraud FIG. 78 How is occupational fraud initially schemes in Sub-Saharan Africa? detected in Sub-Saharan Africa? Corruption Tip
56% 48%
Internal audit
19% 14%
Noncash Management review
18% 11%
Other Cash on hand
-
6% 14%
Account reconciliation
Skimming
-
4%
13% External audit
Expense reimbursements
-
4%
11% Document examination
Cash larceny
-
3%
11% By accident
Financial statement fraud
-
3%
11% Surveillance/monitoring
■ 2%
Check and payment tampering
IT controls
8%
■ 2%
Payroll Notification by law enforcement
-
5% I 1%
Register disbursements Confession
■ 3% I 1%
-
April 5, 2022
Sub-Saharan Africa Report to the Nations
Item #11 Page 78 of 96
FIG. 79 What anti-fraud controls are the most common in Sub-Saharan Africa?
Control Percent of cases
External audit of financial statements 92%
Code of conduct 86%
Internal audit department 85%
Management certification of financial statements 82%
External audit of internal controls over financial reporting 79% Management review 70%
Hotline 69%
Independent audit committee 69%
Anti-fraud policy 61%
Fraud training for employees 57%
Fraud training for managers/executives 54%
Dedicated fraud department, function, or team 49%
Employee support programs 49%
Surprise audits 48%
Formal fraud risk assessments 44%
Proactive data monitoring/analysis 31%
Job rotation/mandatory vacation 28%
Rewards for whistleblowers 21%
FIG. 80 How does the perpetrator's level of authority
relate to occupational fraud in Sub-Saharan Africa?
"' w
"' ~
u
u..
0 ... z w u
"' w
a..
"' "' 0 _,
z
~
0 w :::;
April 5, 2022
41%
Employee
-$40,000
37%
18%
Manager Owner/
executive
$100,000
$979,000
FIG. 81 Cases by country in Sub-Saharan
Africa
Country Number of cases
Angola
Benin
Botswana 5
Burundi
Cameroon 4
Central African Republic 2
Chad
Cote d'Ivoire 4
Democratic Republic of the Congo 5
Ethiopia 2
Gabon
Ghana 12
Kenya 53
Lesotho 2
Liberia 8
Madagascar 4
Malawi 10
Mauritius 6
Mozambique 3
Namibia 3
Nigeria 49
Rwanda 3
Senegal 2
South Africa 77
Sudan 2
Swaziland
Tanzania 7
Togo 4
Uganda 16
Zambia 3
Zimbabwe 9
Total cases:
MEDIAN LOSS:
USO 100,000
Item #11 Page 79 of 96
Sub-Saharan Africa Report to the Nations
-
-
REGIONAL FOCUS
UNITED STATES
AND CANADA
FIG. 82 What are the most common occupational fraud
schemes in the United States and Canada?
Corruption
33%
Billing
26%
Expense reimbursements
19%
Noncash
18%
Check and payment tampering
14%
Payroll
13%
Skimming
11%
Financial statement fraud
10%
Cash on hand
10%
Cash larceny
8%
Register disbursements
-
3%
April 5, 2022
United States and Canada Report to the Nations
FIG. 83 How is occupational fraud initially
detected in the United States and Canada?
Tip
Management review
Internal audit
By accident
Other
Account reconciliation
-Document examination
-External audit
-Surveillance/monitoring
-Notification by law enforcement
-Confession
I
IT controls
I
Item #11 Page 80 of 96
37%
15%
14%
7%
6%
4%
4%
4%
3%
3%
1%
1%
FIG. 84 What anti-fraud controls are the most common in the United States and Canada?
Control Percent of cases
Code of conduct 80%
External audit of financial statements 72%
Internal audit department 71%
Employee support programs 71%
Management review 68%
Management certification of financial statements 67%
Independent audit committee 61%
Hotline 57%
External audit of internal controls over financial reporting 54% Fraud training for managers/executives 51%
Fraud training for employees 51%
Anti-fraud policy 44%
Proactive data monitoring/analysis 38%
Formal fraud risk assessments 35%
Dedicated fraud department. function, or team 33%
Surprise audits 28%
Job rotation/mandatory vacation 15%
Rewards for whistleblowers 10%
FIG. 85 How does the perpetrator's level of authority relate to occupational fraud in the United States and Canada?
Vl
w
Vl
<I
u
IL
0 I-
z w
u
"' w
Q.
Vl
Vl
0 ...J
z
<I
0 w
:.
April 5, 2022
44%
Employee
-
$60,000
32%
Manager
$139,000
21%
Owner/
executive
$438,000
FIG. 86 Cases by country in the
United States and Canada
Country Number of cases
Canada 66
United States 829
Total cases:
MEDIAN LOSS:
USO 120,000
46%
OF ALL CASES
Item #11 Page 81 of 96
United States and Canada Report to the Nations
-
FIG. 87 What are the most common occupational fraud FIG. 88 How is occupational fraud initially schemes in Western Europe? detected in Western Europe?
Corruption Tip
39%
Billing Internal audit
15% 17%
Noncash Management review
15% 12%
Expense reimbursements By accident
12% 9%
Financial statement fraud Other
11%
-
6%
Cash on hand Surveillance/monitoring
11%
-
5%
Check and payment tampering Notification by law enforcement 7%
-
5%
Cash larceny External audit
6%
•
3%
Skimming Account reconciliation
-
5% ■ 2%
Payroll IT controls
-
4% ■ 2%
Register disbursements Document examination
■ 2% ■ 2%
April 5, 2022
- Western Europe Report to the Nations
Item #11 Page 82 of 96
FIG. 89 What anti-fraud controls are the most common in Western Europe?
Control Percent of cases
External audit of financial statements 89%
Code of conduct 87%
Management certification of financial statements 81%
Internal audit department 80%
External audit of internal controls over financial reporting 79% Management review 74%
Independent audit committee 70%
Hotline 65%
Anti-fraud policy 65%
Fraud training for managers/executives 62%
Fraud training for employees 61%
Employee support programs 57%
Formal fraud risk assessments 53%
Dedicated fraud department, function, or team 51%
Proactive data monitoring/analysis 44%
Surprise audits 43%
Job rotation/mandatory vacation 25%
Rewards for whistleblowers 6%
FIG. 90 How does the perpetrator's level of authority
relate to occupational fraud in Western Europe?
"' w
"' " u
u.
0 I-
%
w
u ..
w
..
"' "' g
z
" 0
w
::£
April 5, 2022
45%
Employee
-
s100.ooo
33%
17'l\
Manager Owner/
executive
■ $150,000
$1,350,000
FIG. 91 Cases by country in Western
Europe
Country Number of cases
Austria 2
Belgium 3
Denmark 2
Finland 3
France 6
Germany 12
Greece 21
Ireland 2
Italy 10
Luxembourg
Netherlands 12
Spain 13
Switzerland 17
United Kingdom 24
Total cases:
MEDIAN LOSS:
USO 139,000
7%
OF ALL CASES
Item #11 Page 83 of 96
Western Europe Report to the Nations
-
-
Cases 25th percentile Median (50th) 75th percentile Mean• /111 ch,, 2 448 $29 ')00 $12', 000 $GO:, 000 $1 ',09 000 Schemes
Asset misappropriation 1,639 $21,000 $100,000 $500,000 $1,199,000 Billing 306 $20,000 $100,000 $407,000 $842,000
Noncash 305 $10,000 $78,000 $500,000 $1,138,000
Expense reimbursements 193 $6,000 $33,000 $140,000 $202,000 Skimming 160 $10,000 $47,000 $133,000 $361,000
Cash on hand 154 $5,000 $26,000 $95,000 $1,204,000
Check and payment tampering 141 $40,000 $110,000 $500,000 $588,000 Cash larceny 106 $13,000 $83,000 $305,000 $1,000,000
Payroll 105 $16,000 $62,000 $238,000 $367,000
Register disbursements 27 $7,000 $20,000 $65,000 $85,000 Corruption 789 $34,000 $200,000 $1,100,000 $3,039,000
Financial statement fraud 186 $140,000 $954,000 $5,000,000 $8,693,000 Detection method
Tip 869 $30,000 $145,000 $750,000 $1,486,000
Internal audit 291 $14,000 $100,000 $350,000 $1,115,000 Management review 240 $26,000 $100,000 $570,000 $1,316,000 By accident 103 $50,000 $200,000 $600,000 $613,000
Account reconciliation 86 $17,000 $81,000 $325,000 $485,000 External audit 80 $39,000 $150,000 $972,000 $2,397,000
Document examination 71 $32,000 $101,000 $500,000 $1,357,000 Surveillance/monitoring 56 $10,000 $44,000 $300,000 $955,000 Notified by law enforcement 48 $197,000 $900,000 $9,750,000 $5,206,000 IT controls 33 $9,000 $80,000 $1,255,000 $1,133,000
Confession 23 $100,000 $225,000 $3,000,000 $3,826,000
'Mean amounts were calculated using loss data that was winsorized at 5% (i.e .• assigned all cases in the top 2.5% and botto m 2.5% the same value as the 97.Sth percentile and 2.Sth percentile, respectively).
April 5, 2022 Item #11 Page 84 of 96
Statistic.ii Appendix Report to the Nations
Cases 25th percentile Median (50th) 75th percentile Mean• Victim organization
Region:
United States and Canada 886 $22,000 $120,000 $563,000 $1,234,000 Sub-Saharan Africa 295 $15,000 $100,000 $568,000 $1,523,000 Asia-Pacific 197 $38,000 $195,000 $1,000,000 $1,988,000 Western Europe 124 $50,000 $139,000 $638,000 $2,113,000 Middle East and North Africa 124 $33,000 $100,000 $1,000,000 $1,302,000 Southern Asia 102 $28,000 $117,000 $713,000 $2,208,000
Latin America and the Caribbean 99 $50,000 $200,000 $1,000,000 $1,500,000 Eastern Europe and Western/Central Asia 94 $30,000 $133,000 $499,000 $1,603,000 Organization type:
Private company 883 $31,000 $150,000 $750,000 $1,451,000 Public company 529 $35,000 $150,000 $925,000 $1,675,000 Nonprofit 189 $12,000 $75,000 $300,000 $639,000
Government 327 $23,000 $100,000 $530,000 $1,812,000
National 141 $34,000 $200,000 $1,000,000 $2,652,000
State/provincial 66 $12,000 $91,000 $1,125,000 $2,693,000 Local 105 $18,000 $75,000 $253,000 $365,000
Organization size:
<100 employees 516 $31,000 $150,000 $697,000 $1,145,000 100-999 employees 452 $26,000 $120,000 $520,000 $1,580,000 1,000- 9,999 employees 541 $24,000 $100,000 $513,000 $1,557,000 10,000+ employees 496 $32,000 $140,000 $800,000 $1,715,000 Organization revenue:
< USO 50 million 745 $28,000 $114,000 $500,000 $985,000 USO 50 million-USO 499 million 473 $20,000 $120,000 $684,000 $1,884,000 USO 500 million-USO 999 million 236 $21,000 $132,000 $608,000 $1,936,000 USO 1 billion+ 526 $35,000 $150,000 $1,000,000 $1,679,000 Industry:
Banking and financial services 379 $20,000 $100,000 $600,000 $1,546,000 Government and public administration 193 $18,000 $100,000 $500,000 $1,609,000 Manufacturing 181 $50,000 $198,000 $1,000,000 $1,579,000 Health care 147 $33,000 $200,000 $900,000 $1,508,000
Energy 91 $54,000 $275,000 $1,225,000 $2,337,000
Retail 89 $10,000 $85,000 $550,000 $1,112,000
Insurance 86 $12,000 $70,000 $410,000 $889,000
Education 81 $17,000 $65,000 $250,000 $354,000
Construction 77 $47,000 $200,000 $995,000 $1,872,000
Telecommunications 66 $71,000 $250,000 $2,000,000 $2,049,000 Technology 65 $39,000 $150,000 $1,000,000 $1,823,000
Transportation and warehousing 63 $32,000 $150,000 $1,000,000 $653,000 Food service and hospitality 58 $29,000 $114,000 $509,000 $771,000 Services (professional) 53 $46,000 $150,000 $700,000 $772,000 Real estate 52 $38,000 $254,000 $1,777,000 $1,988,000
Religious, charitable, or social services 43 $12,000 $76,000 $300,000 $919,000 Agriculture, forestry, fishing, and hunting 39 $29,000 $100,000 $1,000,000 $2,191,000 Arts, entertainment, and recreation 39 $30,000 $90,000 $255,000 $1,254,000 Services (other) 29 $7,000 $150,000 $1,400,000 $2,316,000 Mining 26 $100,000 $475,000 $3,100,000 $4,409,000
Wholesale trade 25 $20,000 $130,000 $454,000 $923,000
Utilities 20 $14,000 $163,000 $350,000 $1,271,000
Communications and publishing 14 $39,000 $115,000 $526,000 $673,000 April 5, 2022 Item #11 Page 85 of 96
Statistical Appendix Report to the Nations
-
Cases 25th percentile Median (50th) 75th percentile Mean Perpetrator
Number of perpetrators:
One perpetrator 954 $15,000 $90,000 $300,000 $666,000
Two perpetrators 358 $30,000 $105,000 $713,000 $1,115,000 Three or more perpetrators 641 $75,000 $350,000 $2,000,000 $2,953,000 Position:
Employee 803 $10,000 $60,000 $259,000 $545,000
Manager 688 $36,000 $150,000 $600,000 $1,247,000
Owner/executive 398 $111,000 $600,000 $3,485,000 $3,817,000 Tenure:
> 10 years 452 $50,000 $200,000 $1,000,000 $2,082,000
6- 10 years 432 $50,000 $190,000 $1,000,000 $1,664,000
1-5 years 886 $20,000 $100,000 $500,000 $1,268,000
< 1 year 169 $10,000 $50,000 $295,000 $604,000
Department:
Operations 285 $12,000 $72,000 $410,000 $1,249,000
Accounting 273 $50,000 $200,000 $763,000 $1,109,000
Executive/upper management 230 $132,000 $596,000 $3,383,000 $3,787,000 Sales 222 $22,000 $94,000 $385,000 $807,000
Customer service 174 $15,000 $86,000 $250,000 $826,000
Administrative support 114 $10,000 $76,000 $259,000 $568,000 Finance 101 $19,000 $100,000 $682,000 $1,833,000
Purchasing 95 $39,000 $200,000 $1,000,000 $1,556,000
Information technology 66 $73,000 $200,000 $813,000 $1,204,000 Facilities and maintenance 59 $30,000 $100,000 $450,000 $390,000 Warehousing/inventory 58 $20,000 $85,000 $313,000 $453,000 Board of directors 45 $101,000 $750,000 $5,575,000 $5,205,000 Marketing/public relations 40 $20,000 $100,000 $363,000 $797,000 Manufacturing and production 34 $45,000 $275,000 $1,350,000 $1,486,000 Human resources 27 $15,000 $40,000 $400,000 $915,000
Legal 13 $10,000 $195,000 $741,000 $450,000
Research and development 12 $26,000 $350,000 $1,113,000 $1,795,000 Internal audit 8
'Loss calculations were omitted for categories with fewer than ten responses. -
Apri l 5, 2022
Statistical Appendix Report to the Nations
Item #11 Page 86 of 96
Cases 25th percentile Median (50th) 75th percentile Mean Perpetrator (cont.)
Gender:
Male 1,391 $35,000 $150,000 $1,000,000 $1,823,000
Female 543 $18,000 $85,000 $300,000 $6n,ooo
Age:
<26 81 $5,000 $20,000 $113,000 $169,000
26- 30 191 $15,000 $65,000 $250,000 $403,000
31-35 307 $18,000 $80,000 $400,000 $845,000
36-40 347 $31,000 $150,000 $600,000 $1,320,000
41-45 345 $38,000 $141,000 $750,000 $1,733,000
46-50 268 $56,000 $213,000 $1,200,000 $2,379,000
51- 55 152 $50,000 $207,000 $1,000,000 $1,641,000
56-60 117 $78,000 $400,000 $2,284,000 $3,086,000
>60 60 $120,000 $575,000 $3,425,000 $3,644,000
Education level:
High school graduate or less 325 $15,000 $80,000 $312,000 $933,000 Some university 219 $30,000 $150,000 $451,000 $751,000
University degree 751 $40,000 $175,000 $1,000,000 $1,811,000 Postgraduate degree 238 $35,000 $200,000 $1,000,000 $2,285,000 April 5, 2022 Item #11 Page 87 of 96
Statistical Appendix Report to the Nations
-
-
Age of Perpetrator
How does the perpetrator's age relate to occupational fraud? Spotlight: Profile of a fraudster
Anti-Fraud Controls
45 46--47
How do anti-fraud controls vary by size of victim organization? 35 How does the presence of anti-fraud controls relate to median loss? 33 How does the presence of anti-fraud
controls relate to the duration of fraud? 34
How has the use of anti-fraud
controls changed over the last decade? 32
Spotlight Internal control weaknesses that contribute
to occupational fraud 36
Spotlight: Fraud in nonprofits 28-29
Spotlight Hotline and reporting mechanism effectiveness 21 What anti-fraud controls are most common in various regions? 63-77 What anti-fraud controls are most common? 31
Behavioral Red Flags of Perpetrator
Do fraud perpetrators also engage in non-fraud-related misconduct? 51 Do fraud perpetrators experience negative
HR-related issues prior to or during their frauds? 51
How often do perpetrators exhibit behavioral red flags? 50 - -------Sp o ti i g ht: Behavioral Red Flags of Fraud 52-53 Case Results
How do victim organizations punish fraud perpetrators? 54 ----------How does the recovery of fraud losses vary by region? 57 ---------How does the type of scheme relate to fines
incurred by victim organizations? 57
Spotlight: Response to fraud 55
Why do organizations decline to refer cases to law enforcement? 56 Cost of Fraud
How do gender distribution and median loss vary
based on the perpetrator's level of authority? 44
---------How does the perpetrator's age relate to occupational fraud? 45 How does an organization's gross annual revenue relate
to its occupational fraud risk? 25
How does an organization's size relate to its occupational fraud risk? 25 How does detection method relate to fraud loss and duration? 20 How does occupational fraud affect organizations in different industries? 27 April 5, 2022
Index of Figures Report to the Nations
How does the duration of a fraud relate to median loss? 14 - --------How does the number of perpetrators in a scheme relate to occupational fraud? 48
How does the perpetrator's education level relate to occupational fraud? 46 How does the perpetrator's gender relate to occupational fraud? 43 How does the perpetrator's level of authority relate
to occupational fraud in various regions? 6'J-77
How does the perpetrator's tenure relate to median
loss at different levels of authority? 40
How does the perpetrator's tenure relate to occupational fraud? 39 How does the presence of anti-fraud controls relate to median loss? 33 How is occupational fraud committed? 10
Spotlight Fraud in nonprofits 28-29
Spotlight Hotline and reporting mechanism effectiveness 21 Spotlight Profile of a fraudster 46--47
Spotlight: The global cost of fraud 8-9
What asset misappropriation schemes present the greatest risk? 13 What departments pose the greatest risk for occupational fraud? 41 What is the typical velocity (median loss per month) of different occupational fraud schemes?
What levels of government are victimized by occupational fraud? What types of organizations are victimized by occupational fraud? Concealment of Fraud Schemes
Spotlight: How occupational fraud is concealed
Criminal and Employment Background
of Perpetrator
Do perpetrators tend to have prior employment-related
16 24
24 17
disciplinary actions for fraud? 49
Do perpetrators tend to have prior fraud convictions? 48 ---------Sp o ti i g ht: Behavioral red flags of fraud 52- 53 Was a background check run on the perpetrator prior to hiring? 37 What types of background checks were run on the
perpetrator prior to hiring? 37
Demographics of Survey Participants
How many fraud cases have survey participants
investigated in the past two years? 61
How much fraud examination experience did survey participants have? 61 What was the primary occupation of survey participants? 60 What was the professional role of the survey participants? 61 Item #11 Page 88 of 96
Department of Perpetrator
What are the most common occupational
fraud schemes in high-risk departments? 42
What departments pose the greatest risk for occupational fraud? 41 Spotlight Profile of a fraudster 46-47
Detection Method
How does detection method relate to fraud duration and loss? 20 How is occupational fraud initially detected? 19
---------To whom did whistleblowers initially report? 23 ------- --What formal reporting mechanisms did whistleblowers use? 22 Who reports occupational fraud? 19
Spotlight: Fraud in nonprofits 28-29
Spotlight: Hotline and reporting mechanism effectiveness 21 -------- --
Duration of Fraud
How does detection method relate to fraud loss and duration? 20 How does the duration of a fraud relate to median loss? 14 How does the perpetrator's level of authority relate to scheme duration? 39 How does the presence of anti-fraud controls
relate to the duration of fraud? 34
How long do different occupational fraud schemes last? 15 Education Level of Perpetrator
How does the perpetrator's education level relate to occupational fraud? 46 Spotlight: Profile of a fraudster 46-47
Gender of Perpetrator
How does gender distribution and median loss
vary based on the perpetrator's level of authority? 44
----------How does the gender distribution of perpetrators vary by region? 43 How does the perpetrator's gender relate to occupational fraud? 43 Spotlight: Profile of a fraudster 46-47
Geographical Region of Victim Organization
How does the gender distribution of perpetrators vary by region? How does the recovery of fraud losses vary by region?
43 57
----------
Regional focus (most common schemes, detection, anti-fraud controls, perpetrator's level of authority, and cases by country) Asia-Pacific
62-77
62-63
Eastern Europe and Western/Central Asia 64-65
---------Latin America and the Caribbean 66-67
Middle East and North Africa 68-69
Southern Asia 70-71
Sub-Saharan Africa 72-73
United States and Canada 74-75
Western Europe 76-77
Reported cases by region 7
Spotlight: The global cost of fraud 8-9
Industry of Victim Organization
How does occupational fraud affect
organizations in different Industries?
Spotlight: Fraud in nonprofits
What are the most common occupational
fr~~W)e~ ~51l:J'1~us industries?
27 28- 29
30 Number of Perpetrators
How does the number of perpetrators in a
scheme relate to occupational fraud?
Spotlight: Internal control weaknesses that contribute
to occupational fraud
Position of Perpetrator
How does gender distribution and median loss
vary based on the perpetrator's level of authority?
48 36
44 ---------How does the perpetrator's level of authority relate to occupational fraud? 38
Based on region 63-77
How does the perpetrator's level of authority relate to scheme duration? 39
How does the perpetrator's tenure relate
to median loss at different levels of authority? 40
----------Spotlight: Internal control weaknesses that contribute to occupational fraud
Spotlight: Fraud in nonprofits
Spotlight: Profile of a fraudster
Scheme Type
36 28- 29
46-47
How do fraud schemes vary by organization size? 26
- -------How is occupational fraud committed? 10
How long do different occupational fraud schemes last? 15 -------- - -How often do fraudsters commit more than one type of occupational fraud? 12
Occupational Fraud and Abuse Classification System (the Fraud Tree) 11 Spotlight: Fraud in nonprofits
What are the most common occupational
fraud schemes in high-risk departments?
What are the most common occupational fraud
schemes in various industries?
What asset misappropriation schemes present the greatest risk? What Is the typical velocity (median loss per month)
of different occupational fraud schemes?
Size of Victim Organization
How do anti-fraud controls vary by size of victim organization How do fraud schemes vary by organization size?
28-29
42 30
13 16
35 26
---------How does an organization's gross annual revenue relate to its occupational fraud risk?
How does an organization's size relate to its occupational fraud risk? Spotlight: Control weaknesses that contribute to occupational fraud Spotlight: Hotline and reporting mechanism effectiveness Tenure of Perpetrator
How does the perpetrator's tenure relate to
median loss at different levels of authority?
How does the perpetrator's tenure relate to occupational fraud? Spotlight: Profile of a fraudster
Type of Victim Organization
What levels of government are victimized by occupational fraud? What types of organizations are victimized by occupational fraud? 25 25
36 21
40 39
46-47
24 24
Item #11 Page 89 of 96
Index of Figures Report to the Nations
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The most cost-effective way to limit fraud losses is to preven t fraud from occurring. This checklist is designed to help organizations test the effect iveness of their fraud preven tion measures. Additiona l guidance, resourc es, and too ls for managing organizat ional fraud risk can be found at ACFE.com/fraudrisktools.
1. Is ongoing anti-fraud training provided to all 3. To increase employees' perception of detec- employees of the organization? tion, are the following proactive measures □ Do employees under stand what constitu tes taken and publicized to employees? fraud? □ Is possible fraud ulent conduct aggressively
□ Have the costs of fraud to the company and sought out, rather than dealt with passively? everyone in it-i ncluding lost profits, adverse □ Are surpr ise fraud audits performed in publi city, potential job loss, and decreased addition to reg ularly schedu led audits? morale and productivity-been made clear to □ Are data analytics techniques used to pro-all employees? actively search for fraud and, if so, has the D Do employees know whe re to seek advice use of such techniques been made known when faced with uncertain ethical decisions, throughout the organization? and do they believe that they can speak freely? D Do managers actively review the contro ls, D Has a policy of zero-tolerance for fraud been processes, accounts, or transactions unde r communicated to employees through words their purview for adherence to company and actions? policies and expectations?
2. Is an effective fraud reporting mechanism in 4. Is the management climate/tone at the top one place? of honesty and integrity?
D Have employees been taught how to com- D Are employees periodically surveyed to municate concerns about known or potentia l determi ne the extent to which they believe wrongdoing? management acts with honesty and integrity? D Are one or more reporting channels (e.g., a D Are performance goals realistic and clearly third -party hotli ne, dedicated email inbox, or communi cated? web-based form) available to employees?
□ Have fraud prevent ion goals been incorpo-
□ Do employees trust that they can repo rt sus- rated into the perfo rmance measures that are picious activity anonymous ly and/o r confid en- used to evaluate managers and to determine tially (where legally permissible) and without perform ance-related compensatio n? fear of reprisa l? D Has the organization established, implemented, D Has it been made clear to emp loyees that and tested a process for oversight of fraud risks reports of suspicious activity will be promptly by the board of directors or others charged with and thorough ly evaluated? governance (e.g., the audit committee)? D Do reporting policies and mechanisms extend
to vendors, custome rs, and othe r outside
parties?
April 5, 2022 Item #11 Page 90 of 96
Fraud Prevention Checklist Reporl to the Nations
5. Are fraud risk assessments performed to pro
actively identify and mitigate the company's
vulnerabilities to internal and external fraud?
6. Are strong anti-fraud controls in place and
operating effectively, including the following?
□ Proper separatio n of duties
□ Use of autho rizations
□ Physical safeguar ds
□ Job rotat ions
□ Mandatory vacatio ns
7. Does the internal audit department, if one
exists, have adequate resources and authority
to operate effectively and without undue influ
ence from senior management?
8. Does the hiring policy include the following
(where permitted by law)?
□ Past employmen t verification
□ Crimina l and civil background checks
□ Credit checks
□ Drug screen ing
□ Education veri fication
□ References checks
April 5, 2022
9. Are employee support programs in place to
assist employees struggling with addiction,
mental/emotional health , family, or financial
problems?
10. Is an open-door policy in place that allows
employees to speak freely about pressures ,
providing management the opportunity to
alleviate such pressures before they become
acute?
11. Are regular, anonymous surveys conducted to
assess employee morale?
Item #11 Page 91 of 96
Fraud Prevention Checklist Report to the Nations
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Asset misappropriation: A scheme in which an employee
steals or misuses the employing organization's resourc es (e.g., theft of company cash, false billing schemes, or inflated expense reports)
Billing scheme: A fraudulent disbursement scheme in which a person causes their employer to issue a payment by
submitting invoices for fictitiou s goods or services, inflated invoices, or invoices for personal purchases (e.g., employee creates a shell company and bills employer for services not actually rendere d; employee purchases personal items and submits an invoice to employe r for payment )
Cash larceny: A scheme in which an incoming payment is
stolen from an organization after it has been recor ded on the organ ization's books and records (e.g., employee steals cash and checks from daily receipts before they can be
deposite d in the bank)
Cash-on -hand misappropriations : A scheme in which the perpetrator misapp ropriates cash kept on hand at the victim organization's premises (e.g., emp loyee steals cash from a company vault)
Check or payment tampering scheme : A fraudulent dis
bursement scheme in which a person steals their employ er's funds by intercepting, forging, or altering a check or electronic payment drawn on one of the organization's bank accounts (e.g., employee steals blank company checks and makes them out to themself or an accomplice; employee
re-routes an outgoing electronic payment to a vendor to be deposite d into their own bank account)
Corruption: A scheme in which an employee misuses their influence in a business transact ion in a way that violates their duty to the employer in order to gain a direct or indi rect benefit (e.g., schemes involving bribery or conflicts of interest)
Employee support programs: Progra ms that provide
assistance to employees dealing with personal issues or challe nges, such as counseling services for drug, family, or financia l prob lems
Expense reimbursements scheme: A fraudulent disburse
ment scheme in which an employee makes a claim for reim bursement of fictitious or inflated business expenses (e.g., employee files fraudu lent expense report, claiming persona l travel, nonexisten t meals)
April 5, 2022
Glossary of Terminology Report to the Nations
Financial statement fraud: A scheme in which an employee inten tionally causes a misstatement or omission of mate- rial information in the organization's financial reports (e.g., recordi ng fictitiou s revenues, understating reported expens es, or artificially inflating reported assets)
Hotline: A mechanism to report fraud or other violations, whether managed internally or by an external party. This might include, in additi on to telephone hotlines, web-base d platforms and other mechanisms established to facilitate fraud reporting.
Management review: The process of management review
ing organizat ional controls, processes, accounts, or transac tions for adherence to company policies and expectations Nonca sh misappropriations: Any scheme in which an
employee steals or misuses noncash assets of the victim organizat ion (e.g., employee steals inventory from a ware house or storeroom; employee steals or misuses confiden tial custome r information)
Occupational fraud: The use of one's occu pation for
personal enrichment through the deliberate misuse or
misapp lication of the emplo ying organization's resources or assets
Payroll scheme: A fraudulent disbursement scheme in
which an employee causes their employer to issue a
payment by making false claims for compensation (e.g.,
employee claims overtime for hours not worked; employee adds ghost emp loyees to the payroll)
Primary perpetrator: The person who worke d for the victim organization and who was reasonably confirmed as the
primary culprit in the case
Register disbursements scheme : A fraudulent disburse
ment scheme in which an employee makes false entries on a cash register to conceal the fraudulent removal of cash (e.g., emplo yee fraudulently voids a sale on his or her cash register and steals the cash)
Skimming: A scheme in which an incoming paymen t is
stolen from an organization befo re it is recorded on the organization's books and records (e.g., employee accepts payment from a customer but does not recor d the sale and instead pockets the money)
Item #11 Page 92 of 96
ABOUT THE ACFE
Founded in 1988 by Dr. Joseph T. Wells, CFE, CPA, the Association of Certifie d Fraud Examiners (ACFE) is the world's largest anti-fraud organization and premier provider of anti-fraud training and educatio n. Together with more than 85,000 members, the ACFE is reducing business fraud worldwide and providing the training and resour ces needed to fight fraud more effectively. The ACFE provides educationa l tools and practical solutions for anti-fraud profess ionals through events, education, publications, networking, and educationa l tools for colleges and universities.
Certified Fraud Examiners
The ACFE offers its members the opportunity for professional certification with the Certified Fraud Examiner (CFE) cred ential. The CFE is preferred by businesses and government entities around the world, and indicates expertise in fraud prevention and detection. CFEs are anti-fraud experts who have demonstrated knowledge in four critical areas: Financial Transactions and Fraud Schemes, Law, Investigation, and Fraud Prevention and Deterrence .
Membership
•
Member s of the ACFE include accountants, interna l auditors, fraud investigators, law enforcement officers, lawyers, business leaders, risk/compliance professionals, and educato rs, all of whom have access to expert training , educational tools, and resources. Whether their career is focused exclusively on prevent ing and de tecting fraudu lent activities or they just want to learn more about fraud, the ACFE provides the essent ial tools and resources necessary for anti-fraud professionals to accomplish their objectives.
To learn more, visit ACFE.com or call (800) 245-3321 / +1 (512) 478-9000.
Contact
Association of Certified Fraud Examiners
Global Headquarters
716 West Ave I Austin, TX 7870 1-2727 I USA
Phone: (800) 245-332 1 / +1 (512) 478-9000
ACFE.com I [email protected]
TERMS OF USE:
The Report to the Nations is available for use free of charge as a public service of the ACFE. You may download , copy and/or dis tribute the Report to the Notions for personal or business use on the following condition s:
1. No portion of the Report to the Nations may be sold or otherwise licensed, shared or transferred to any party for a fee, or included in any work that is to be sold, licensed , shared or transferred to any party for a fee, without the express written conse nt of the ACFE. The foregoing notwithstanding, you are permitted to use the Report to the Nations as part of a speech or presentation for which an admission fee is cha rged.
2. The Report to the Nations must be properly attributed to the ACFE, including the name of the publication. An example of prope r attribution is: "2020 Report to the Notions. Copyright 2020 by the Association of Certified Fraud Examiners, Inc." April 5, 2022 Item #11 Page 93 of 96
About the ACFE Report to the Nations
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State of California
GOVERNMENT CODE
Section 53087 .6
Exhibit 3
53087.6. (a) (1) A city, county, or city and county auditor or controller who is elected to office may maintain a whistleblower hotline to receive calls from persons who have information regarding fraud, waste, or abuse by local government employees. (2) A city, county , or city and county auditor or controller who is appointed by, or is an employee of, a legislative body or the government agency that is governed by the city, county, or city and county, shall obtain approval of that legislative body or the government agency, as the case may be, prior to establishing the whistleblower hotline.
(b) The auditor or controller may refer calls received on the whistleblower hotline to the appropriate government authority for review and possible investigation. (c) During the initial review of a call received pursuant to subdivision (a), the auditor or controller, or other appropriate governmental agency, shall hold in confidence information disclosed through the whistleblower hotline , including the identity of the caller disclosing the information and the parties identified by the caller. (d) A call made 'to the whistleblower hotline pursuant to subdivision (a), or its referral to an appropriate agency under subdivision (b ), may not be the sole basis for a time period under a statute of limitation to commence. This section does not change existing law relating to statutes of limitation.
( e) (I) Upon receiving specific information that an employee or local government has engaged in an improper government activity, as defined by paragraph (2) of subdivision (f), a city or county auditor or controller may conduct an investigative audit of the matter . The identity of the person providing the information that initiated the investigative audit shall not be disclosed without the written permission of that person , unless the disclosure is to a law enforc ement agency that is conducting a criminal investigation. If the specific information is in regard to improper government activity that occurred under the juri sdiction of another city, county, or city and county , the information shall be forwarded to the appropriate auditor or controller for that city, county, or city and county.
(2) Any investigative audit conducted pursuant to this subdivision shall be kept confidential, except to issue any report of an investigation that has been substant iated, or to release any findings resulting from a completed investigation that are deemed necessary to serve the interests of the public . In any event, the identity of the individual or individuals reporting the improp er government activity, and the subject employee or employees shall be kept confidential.
(3) Notwithstanding paragraph (2), the auditor or controller may provide a copy of a substantiated audit report that includes the identities of the subject employ ee or April 5, 2022 Item #11 Page 95 of 96
employees and other pertinent information concerning the investigation to the appropriate appointing authority for disciplinary purposes. The substantiated audit report, any subsequent investigatory materials or information , and the disposition of any resulting disciplinary proceedings are subject to the confidentiality provisions of applicable local, state, and federal statutes, rules, and regulations. ( f) ( 1) For purposes of this section, "employee" means any individual employed by any county, city, or city and county, including any charter city or county, and any school district, community college district, municipal or public corporation, or political subdivision that falls under the auditor's or controller's juri sdiction. (2) For purpo ses of this section, "fraud, waste, or abuse" means any activity by a local agency or employee that is undertaken in the performance of the employee's official duties , including activities deemed to be outside the scope of his or her employment, that is in violation of any local, state, or federal law or regulation relating to corruption , malfeasance, bribery, theft of government property, fraudulent claims, fraud, coercion , conversion, malicious prosecution, misuse of government property, or willful omission to perform duty, is economically wasteful , or involves gross misconduct.
(Amended by Stats. 20 I 0, Ch. 80, Sec. I. (AB 1666) Effective January I, 2011.) April 5, 2022 Item #11 Page 96 of 96