August 6, 2018
The
Association of Certified Fraud Examiners (ACFE)
released its
2018 Report to the Nations on Occupational Fraud and Abuse
. This is the 10
th
year that ACFE conducted this comprehensive analysis of fraud cases. This year, 2,690 real cases of occupational fraud from 125 countries in 23 industry categories totaling $7 billion in total losses were studied. The analysis found that among the cases included in the research, the average median loss per case was $130,000 globally and $108,000 (1,000 cases) in the U.S. Nearly a quarter (22%) of the fraud cases reviewed resulted in losses of more than $1 million.
The good news is that although total fraud losses increased, median fraud losses declined slightly both globally and in the U.S. The 2,410 cases investigated from 114 different countries worldwide for the 2017 Report to the Nations painted a bleaker picture. Last year’s study concluded that the total loss victims realized was over $6.3 billion. More than 23% of cases resulted in a loss of over $1 million. The median loss in all industries was $150,000 globally and $120,000 in the U.S.
Small businesses lost almost twice as much per scheme to fraud in the 2018 study. The median loss was $104,000 for companies with more than 100 employees and $200,000 in organizations with fewer than 100 employees. Last year the median loss for small businesses was the same as in larger organizations at $150,000. The frequency of fraud cases investigated was higher at smaller businesses (28%) with fewer than 100 employees. This slightly less than in 2017 (30.1%). Larger companies ranging in size from 100-999 employees, to 1,000-9,999, and more than 10,000 employees accounted for 22%, 26%, and 24% respectively, of the fraud schemes analyzed. The impact of a loss due to fraud is much greater on a smaller organization. Even one case could put a small company out of business.
Most of the fraud cases (89%) examined in 2018 involved the misappropriation of assets. Although this type of scheme is more common than others, the median loss is less at $114,000. Financial statement fraud cases were the least common but resulted in the highest median loss at $800,000. Corruption was the most common scheme in every global region.
More than 70% of the fraud cases studied occurred at for-profit organizations, with 42% of the victim organizations being private companies and 29% public companies. Private companies suffered the greatest median loss at $164,000. Not-for-profit organizations were victims in only 9% of the frauds and had the smallest median loss of $75,000, which could still be devastating.
The most common occupational fraud schemes in the U.S. were:
- Corruption (30%)
- Billing (26%)
- Noncash (21%)
- Expense Reimbursements (17%)
- Cash on Hand (15%)
- Check and Payment Tampering (15%)
- Skimming (14%)
- Cash Larceny (11%)
- Payroll (10%)
- Financial Statement Fraud (9%)
- Register Disbursements (3%)
Fraud is a serious problem globally and in the U.S. When asked to estimate the percentage of revenues lost annually in fraud schemes, the median response from the Certified Fraud Examiners (CFEs) that participated in the research was 5%. To put this into context, 5% of the 2017 estimated Gross World Product (GWP) of $79 trillion results in a projected fraud loss of nearly $4 trillion! Although this number is only an estimate and the actual fraud scheme loss could be much higher or lower, it is a valid benchmark to assess the seriousness of the problem.
Internal control weaknesses were responsible for nearly half of all of the fraud cases. Now might be a good time to review your internal controls. Feel free to call any member of our team at 610-828-1900 with questions on how to enhance your internal controls. You can also contact me at
Marty.McCarthy@MCC-CPAs.com
. We are always happy to help.
