It is inevitable that there will be fraud in virtually any organization. As such, it is best practice to purchase and implement effective anti-fraud control. Companies that are on the lookout for fraud are much more effective at minimizing their losses than companies that wait until something happens to take action. Typically, relying on passive or external detection methods results in significantly larger fraud expenses than taking preventative measures.
While data analytics has slowly become the norm for preventing fraud, large portions of the anti-fraud community have not made automated tools a part of their fraud audit and detection practices. A recent AuditNet.org survey found that approximately 30 percent of organizations that own data analysis software do not use the technology to detect or look into fraud cases. Another 23 percent only use data analysis on a case by case basis with no defined strategy for tackling the larger issue. Of the companies that do use data analysis software, only 16 percent have a defined strategy for using it to perform audits[1].
The Report to the Nations is a study conducted every other year based on real cases of workplace fraud. The Certified Fraud Examiners (CFEs) who are in charge of the investigations provide in-depth details for the study. The most recent report for 2014 examines more 1,450 fraud cases that took place in over 100 countries.
The Association of Certified Fraud Examiners (ACFE) identified 18 common anti-fraud controls. They inquired which, if any, of these controls the victim organizations had implemented at the time that the fraud took place. Then they compared the fraud median duration and loss based on whether each control was or was not present.
Every control is associated with a substantial median loss reduction, which ranges anywhere between 20 and 60 percent per scheme. Each control is also associated with quicker fraud detection. Keep in mind that this analysis is not a flawless measure of control effectiveness. As the data pertains to frauds that have occurred, there is no measure of control preventative impact. However, there is strong evidence that anti-fraud controls have a sizable impact in decreasing fraud losses.
In the 2014 study the “proactive data monitoring and analysis” control received the highest score. Companies that use proactive data monitoring tools had frauds with a 60 percent lower median loss over companies without the tool. Additionally, these companies detected fraud twice as quickly. Only a little over one third of the fraud victim businesses in the study implemented proactive data monitoring fraud tools. Cost is likely a prohibitive factor for many organizations[2]. The average small business may not have the personnel or financial resources to conduct proactive monitoring. Among larger organizations with 10,000 or more employees, the implementation rate is as high as 49 percent[3]. This means that more than half of the well financed, large corporations are still not using the tool.
The ACFE report includes a host of details about how frauds are committed, what the highest risk areas are for varying industries and departments, and the characteristics of fraud criminals. This information may help your company determine where it is most susceptible to fraud and then implement appropriate systems to increase your chances of catching criminals early, minimizing fraud losses.
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Veriti Consulting LLC can assist with anti-fraud control and financial investigations for individuals and businesses across the United States. Veriti is also a licensed private investigation agency. If you would like to learn more about the various fraud and forensic accounting services we offer call 855.232.4410 or contact us via email.
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[1] https://www.acfe.com/fraud-examiner.aspx?id=4294971085 [2] https://acfeinsights.squarespace.com/acfe-insights/2014/5/21/new-report-reveals-data-analysis-as-most-effective-anti-fraud-control [3] https://acfeinsights.squarespace.com/acfe-insights/2014/5/21/new-report-reveals-data-analysis-as-most-effective-anti-fraud-control