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Report: Worldwide, Organizations Lose Billions to Fraud

By:
S.J. Steinhardt
Published Date:
Mar 21, 2024

iStock-949207990 Fraud Accounting Invoice

Companies lose an estimated 5 percent of their revenue each year due to fraud, for a worldwide total in the billions, according to a recent report, Accounting Today reported.

Investigations by certified fraud examiners revealed that a total of $3.1 billion was lost due to fraud, based on 1,921 actual fraud cases from 138 countries and territories in 22 major industry categories between January 2022 and September 2023, the Association of Certified Fraud Examiners (ACFE) reported. The median loss per case was $145,000, and the average loss per case was $1.7 million.

Financial statement frauds were the least common, making up 5 percent of the cases in the study, but they were also the costliest. Median losses due to financial statement fraud were up by 29 percent from 2022, to $766,000. Asset misappropriation schemes were the most common, comprising 89 percent of the cases in the study, but the least costly; the median loss was $120,000, up 20 percent from 2022. The most common asset misappropriation schemes involved billing and theft of noncash assets, with each scheme responsible for 22 percent of cases. Forty-eight percent of these cases involved corruption.

The report found that more than half (51 percent) of occupational frauds occur due to lack of internal controls (32 percent) or an override of existing internal controls (19 percent). It also revealed that the longer a fraudster has worked for an organization, the more costly the fraud, with a median loss of $50,000.

Forty-three percent of frauds were detected by tips. Fifty-two percent of those tips came from employees, 21 percent came from customers, and 11 percent came from vendors.

The vast majority (84 percent) of fraudsters exhibited at least one behavioral red flag before they were caught, with the most common being that they were living beyond their means (39 percent). Financial difficulties (27 percent) and an unusually close association with a vendor or customer (20 percent) were others.

Sixty-eight percent of perpetrators in the study were terminated by their employers, Fifty-seven percent of fraud cases were referred to law enforcement, and 72 percent of those referred cases resulted in a conviction. Among organizations that did not refer cases to law enforcement, 49 percent cited internal discipline as the reason, and 34 percent cited fear of bad publicity.

Many of the cases investigated during the 2022-24 period had fraud associated with pandemic-related programs. Fifty-three percent of the cases had at least one pandemic-related factor that contributed to the fraud's occurrence. Median losses increased by 24 percent during that period.

"Pandemic lockdowns prevented fraudsters being able to work together to commit frauds," said ACFE president John Gill in a statement reported by Accounting Today. "However, the economic pressures of the pandemic, combined with the opportunity of remote work and emptier offices, kept the frauds going."

The median loss per fraud case in government organizations amounted to $150,000, according to the ACFE report, with corruption more likely to occur at the national level of government. The median loss for both public and private companies was also $150,000, while nonprofit organizations—including nongovernmental organizations (NGOs)— represented the smallest percentage of cases (10 percent) and had the lowest median loss of $76,000.