The most pervasive forms of fraud
are the least damaging, but that provides only limited comfort to
businesses, nonprofits and government agencies that fall victim
to it. Nearly 90 percent of occupational fraud involves misappropriation
of assets, usually cash, according to the Association of Certified
Fraud Examiners.
A recent study of 583 cases of
fraud found that 87 percent involved theft or misuse of assets,
and the median damage to the organization in those instances was
$80,000. Examples of misappropriation include skimming cash "off
the top" before the organization can record it, or stealing
it after it is recorded, termed "larceny." The rarest
form of occupational fraud, in contrast, is the most damaging: Fraudulent
statements accounted for only 5 percent of the 583 cases, but the
median expense to the victimized organization was $4.25 million.
Fraudulent statements involve falsification of an organization's
financial statements, and can include overstating revenues and understating
liabilities. Occupying the middle ground was a third type of fraud—corruption.
Described as instances in which
people wrongfully use their influence in a business transaction
in order to procure some gain (such as kickbacks) for themselves
or an ally, corruption occurred in 13 percent of the cases (some
cases involved more than one type of fraud), causing damage on average
of $530,000. The association, in a report released this year, disclosed
some other noteworthy statistics: The average fraud scheme lasted
18 months before it was detected. The average scheme in a small
business causes $127,500 in losses, compared with an average of
only $97,000 in the largest companies.
Organizations with fraud hotlines
cut their fraud losses by about 50 percent per scheme. The most
common method for detecting occupational fraud is through tips from
employees, customers, vendors and anonymous sources. The second
most common method of discovery is by accident.
Frauds committed by employees cause
median losses of $60,000, while frauds committed by managers or
executives cause median losses of $250,000. When managers and employees
conspire in a fraud scheme, the median loss rises to $500,000. Losses
caused by perpetrators older than 60 are 27 times higher than losses
caused by employees 25 and younger.
The typical occupational fraud
perpetrator is a first-time offender. Only 7 percent of perpetrators
in the association's latest study were known to have prior convictions
for fraud-related offenses. An estimated 6 percent of revenue will
be lost in 2002 as a result of occupational fraud. Applied to the
U.S. Gross Domestic Product, this translates to losses of approximately
$600 billion.
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©2002 TABIC.
All rights reserved.
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