Whistleblowing is in high demand — key findings from 2020 ACFE Report

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     That's not the first time we're trying to gather all available statistics on whistleblowing efficiency and fraud consequences (like in our recent post). One of the most significant contributors to our knowledge about current fraud tendencies is ACFE (Association of Fraud Examiners), and it's new Report to the Nations is now open for discussion and analysis.

   What has changed since last ACFE 2018th report? Let's check what we know about fraud and people who commit it in 2020.


 

Fraud detection: what is the role of whistleblowing hotlines?

     Good news for compliance followers: whistleblowing is more popular than ever, and we sincerely hope that this trend will continue. In 2010 41% of surveyed companies in multiple countries used whistleblowing mechanisms, in 2020 this number is 49%. Do hotlines influence the speed of fraud detection? Being short, yes. In 2020 43% of all fraud schemes were detected by tips (in contrast to 40% of 2018th Report). Facts from ACFE:

  • Half of all tips come from employees.
  • Whistleblowing hotlines help cut the losses almost twice (median losses of companies with hotlines are $100,000 per company, without them — $198,000.
  • Organizations with hotlines detect fraud in 12 months, without them - 18 months.

    Hotlines make the investigation cheaper and faster - that's a fact. However, some details should be given regarding the process of whistleblowing. Not all the tips come through the hotlines - many employees still prefer to report directly to the manager or compliance officer. Additionally, all the employees should be informed about whistleblowing mechanisms in the company (56% of tips can be gathered with training and only 37% without them).

    A noteworthy trend in whistleblowing, which is very likely to maintain is the popularity of web-based forms. Now there are two the most popular ways to blow the whistle: telephone lines and web forms. People stick to online methods of reporting: in 2018, 42% of whistleblowers used telephone hotlines. In 2020, this number is 33%.

    The opposite happened with email and web-based forms - the number of people who use it went up by 10%. If you don't want your employees to report via social media or regulators, it's precisely the time for thinking about upgrading or creating online whistleblowing system.


 

Does fraudster have a portrait?

   They create and alter fraudulent physical documents and do the same with electronic ones. When it's done, hope lies only in fraud detection systems. A typical fraudster is a man with a university degree whose position in the company is the employee.

   It does not mean that women do not commit fraud and that it's doubtful that perpetrator was the executive - we just underline the most common statistics in fraud. It's hard to imagine, but 72% of fraud was committed by men with higher losses if the same was done by women.

   The higher is the position of a specific perpetrator in the company, the longer his fraud scheme will last. Also, methods of the perpetrator will be more complicated. The percentage of executives who are engaged in fraud reaches its most at 20%. Don't be deceived with this number. Average loss caused by the employee is $60,000, by the manager - $150,000. When it's executive, be ready to lose $600,000.

   Fraudsters often don't come alone - they bring red flags with themselves. Nothing has changed for 2020. Among classic red flags are living beyond means, experiencing financial difficulties, being in close relationships with vendor or customer. Sometimes perpetrators do not expose any red flags; still, if you notice these, it is worth to check the finances once again.


 

Fraud it is: methods, losses, targets

Fraud speeded up: in 2018, the median duration of the fraud scheme was 16 months, in 2020 it is 14 months. Total loss from fraudulent actions is estimated to be $3.6 billion, and it's only in discovered cases of fraud. Private and public companies suffer the most with equal median loss. Still, fraud schemes tend to be found in NGO's as well since their level of compliance and fraud protection is much weaker than in private organizations.

If caught, the perpetrator will be most likely punished with the termination of his or her contract. 66% of organizations deal with fraudsters like this, others may choose settlement agreement or require a resignation.

    The damage of fraud is inevitable: according to ACFE, 54% of companies have never recovered their losses. In specific regions, this percentage might be even higher. When legislation doesn't work in your favour, there is nothing that whistleblowing mechanisms or audit can do.

   That's a tiny piece of ACFE 2020 Report, and we recommend you to dig into it and know more. The lesson from it is that fraud cases do not decrease with years and so do not fraudsters disappear. Only sophisticated measures with training, whistleblowing systems, external and internal audits can prevent or detect fraud at its earliest stage and save your company from significant losses.


 

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