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That's not the first time we've tried 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 its new Report to the Nations is now open for discussion and analysis.
What has changed since the last ACFE 2018th report? Let's check what we know about fraud and people who commit it in 2020.
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 the 2018th Report). Facts from ACFE:
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 of 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 them 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 an online whistleblowing system.
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 the 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 the position of a specific perpetrator in the company, the longer his fraud scheme will last. Also, the methods of the perpetrator will be more complicated. The percentage of executives who are engaged in fraud reaches it most at 20%. Don't be deceived by this number. The average loss caused by the employee is $60,000, and by the manager - is $150,000. When it's executive, be ready to lose $600,000.
Fraudsters often don't come alone - they bring red flags with them. Nothing has changed for 2020. Among classic red flags are living beyond means, experiencing financial difficulties, and being in close relationships with vendors or customers. Sometimes perpetrators do not expose any red flags; still, if you notice these, it is worth checking the finances once again.
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 losses. Still, fraud schemes tend to be found in NGOs 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 a 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 favor, there is nothing that whistleblowing mechanisms or audits can do.
That's a tiny piece of the ACFE 2020 Report, and we recommend you 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, and external and internal audits can prevent or detect fraud at its earliest stage and save your company from significant losses.
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