REPORT TO THE NATIONS

2018 GLOBAL STUDY ON OCCUPATIONAL FRAUD AND ABUSE


Bruce Dorris, J.D., CFE, CPA
President and CEO,
Association of Certified
Fraud Examiners
2 Foreword Report to the Nations
FOREWORD
With the publication of the 2018 Report to the Nations, I am
struck by how this study, like the Association of Certified Fraud
Examiners itself, is in many ways a tribute to the vision and
dedication of our founder and chairman, Dr. Joseph T. Wells,
CFE, CPA. When Dr. Wells created the ACFE, he did so because
he recognized there was a fundamental flaw in how organiza-
tions were attempting to prevent, detect, and investigate fraud.
His goal in founding our association was to establish a body of
knowledge and training that would help anti-fraud professionals
reduce the incidence of fraud and white-collar crime.
One thing Dr. Wells came to recognize in the early days of the
ACFE was that the anti-fraud profession suffered from a glaring
weakness: we simply did not know enough about the crimes we
were trying to fight. So, with the aid of ACFE researchers John
Warren and Andi McNeal, he set out to address the problem by
commissioning the first Report to the Nation in 1996.
The 2018 report is the 10th edition of Dr. Wells’ study, and the Re-
port to the Nations remains the most comprehensive and widely
quoted source of occupational fraud data in the world. Based
on information from real fraud cases as reported by CFEs from
around the globe, the report continues to be a tremendous re-
source for those interested in how occupational fraud is commit-
ted, how it is detected, who commits it, and how organizations
can protect themselves from it.
On behalf of the ACFE, I am proud to present the 2018 edition of
the Report to the Nations.
Bruce Dorris, J.D., CFE, CPA
President and CEO,
Association of Certified Fraud Examiners
CONTENTS
Key Findings 4
Introduction 6
The Cost of Occupational Fraud 8
Projecting Total Fraud Losses Based on Imperfect Data 8
The Fraud Costs We Know 8
How Occupational Fraud Is Committed 10
Categories of Occupational Fraud 10
Spotlight: Corruption 13
Duration of Fraud Schemes 14
Spotlight: Concealing Fraud 14
Detection 16
Initial Detection of Occupational Frauds 16
Tip Sources 17
Median Loss and Duration by Detection Method 18
Spotlight: Hotlines and Reporting Mechanisms 19
Victim Organizations 20
Type of Organization 20
Size of Organization 21
Spotlight: Fraud in Small Businesses 22
Industry of Organization 24
Anti-Fraud Controls at the Victim Organization 26
Perpetrators 33
Perpetrator’s Position 33
Perpetrator’s Tenure 34
Spotlight: Fraud Committed by Owners and Executives 34
Perpetrator’s Department 36
Perpetrator’s Gender 39
Perpetrator’s Age 41
Perpetrator’s Education Level 41
Collusion by Multiple Perpetrators 42
Perpetrator’s Criminal Background 42
Perpetrator’s Employment History 43
Behavioral Red Flags Displayed by Perpetrators 43
Spotlight: The Red Flags of Fraud 44
Non-Fraud-Related Misconduct by Perpetrators 46
Human Resources-Related Red Flags 46
Case Results 47
Internal Action Taken Against Perpetrator 47
Criminal Prosecutions and Civil Suits 48
Spotlight: When Victim Organizations are Fined 50
Spotlight: Recovering Fraud Losses 51
Methodology 52
Analysis Methodology 52
Survey Participants 54
Regional Focus 56
Asia-Pacific 56
Canada 58
Eastern Europe and Western/Central Asia 60
Latin America and the Caribbean 62
Middle East and North Africa 64
Southern Asia 66
Sub-Saharan Africa 68
United States 70
Western Europe 72
Index of Figures 74
Fraud Prevention Checklist 76
Glossary of Terminology 78
About the ACFE 79
Contents Report to the Nations 3
 KEY FINDINGS

2,690 $7 billion+
Median duration
of a fraud scheme

real cases of IN TOTAL LOSSES

occupational fraud
from
$130,000
125 countries
MEDIAN LOSS PER CASE

MONTHS
in 22%
23
OF CASES CAUSED
industry
categories
LOSSES OF
Corruption
$1 million+ was the most common scheme
in every global region

Tips are by far the most common

��
initial detection method
Asset Misappropriation schemes $800,000
are the most common and least costly median loss

�� internal management
tips
��
$114,000 40% audit review
median loss 15% 13%
89%
of cases

employees Organizations with hotlines

provide over half detect fraud by tips more often
of tips, and nearly
1/3 come from
financial statement outside parties
46%
fraud schemes OF CASES
30%
are the least common 10% DETECTED
of cases BY TIP OF CASES
and most costly DETECTED
BY TIP

HOTLINES NO HOTLINES

SMALL BUSINESSES
LOST ALMOST
TWICE AS MUCH
PER SCHEME
TO FRAUD
$104,000
MEDIAN LOSS
$200,000 MEDIAN LOSS

100+ EMPLOYEES <100 EMPLOYEES

4 Key Findings Report to the Nations

INTERNAL CONTROL WEAKNESSES
WERE RESPONSIBLE FOR NEARLY Owners/executives
HALF OF FRAUDS accounted for
a small percentage
of cases
Losses caused by men
were 75% larger
than losses caused by women

ALL 18 ANTI-FRAUD CONTROLS median losses

ANALYZED WERE ASSOCIATED
19% $$$$$$$ are far greater
WITH LOWER FRAUD LOSSES of cases $74,000 when fraudsters
collude
AND QUICKER DETECTION
2

but caused a $$$$$$$$$$$$$$

$150,000
median loss of

$850,000
3+

$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$
$339,000

DATA MONITORING/ANALYSIS and

SURPRISE AUDITS were correlated with the
largest reductions in fraud loss and duration
FRAUDSTERS WHO HAD BEEN
WITH THEIR COMPANY LONGER
���52% Data monitoring/
analysis

��� 58%

85%
STOLE TWICE AS MUCH
MORE THAN 5 YEARS’ TENURE

$200,000
lower losses faster detection

���51%
lower losses
Surprise
audits
��� 54%
faster detection
of fraudsters
displayed at least
one behavioral

red flag
MEDIAN LOSS

LESS THAN 5 YEARS’ TENURE

$100,000
Yet only 37% of victim organizations
of fraud
MEDIAN LOSS
implemented these controls

Only 4%
Over the past 10 years, occupational fraud
referrals to prosecution declined 16%
OF PERPETRATORS
TOP REASON FOR HAD A PRIOR
NON-REFERRALS WAS
FRAUD CONVICTION

-16%
FEAR OF BAD
PUBLICITY
A MAJORITY OF THE VICTIMS RECOVERED NOTHING
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Key Findings Report to the Nations 5

 INTRODUCTION
Fraud in general poses a tremendous
threat to organizations of all types
and sizes, in all parts of the world.

Among the various kinds of fraud that organizations

might be faced with, occupational fraud is likely the The goal of the Report to the Nations
largest and most prevalent threat. Occupational
is to compile detailed information
fraud1—fraud committed against the organization by
about occupational fraud cases in
its own officers, directors, or employees—constitutes
an attack against the organization from within, by the
five critical areas:
very people who were entrusted to protect its assets
The methods by which occupational
and resources. Since we began tracking data on
fraud is committed
occupational fraud cases in 1996, we have reviewed
thousands of cases in which insiders collectively The means by which occupational frauds
stole billions of dollars from their employers, and are detected
those cases were merely a drop in the bucket. There
are millions of business and government organiza- The characteristics of the organizations
tions operating throughout the world and every one that are victimized by occupational fraud
of them, in some way, is vulnerable or potentially
vulnerable to fraud committed by their employees.
The characteristics of the people who
Most of those employees will never steal or abuse
commit occupational fraud
the trust that has been placed in them, but the ones
The results of the cases after the frauds
who do can cause enormous damage. It is because
have been detected and the perpetrators
of this risk that we continue to study these frauds
identified
and publish the Report to the Nations.

This study contains an analysis of 2,690 cases of
occupational fraud that were investigated between
January 2016 and October 2017. The data present-
ed herein is based on information provided by the
Certified Fraud Examiners who investigated those
cases. Their firsthand experience with these frauds
provides an invaluable resource for helping us un-
1
Occupational fraud is defined as the use of one’s occupation for per-
sonal enrichment through the deliberate misuse or misapplication of the
employing organization’s resources or assets.
derstand occupational fraud and the impact it has on
organizations.
The data we have gathered provides a broad and
deeply representative picture of occupational fraud’s
impact. The cases in this study include frauds com-
mitted against organizations in 23 major industry
categories. Victim organizations range from small local
businesses to multinational corporations with thou-
sands of employees. These frauds were committed by

6 Introduction Report to the Nations

individuals who worked in virtually every part of the
organization, from entry-level employees to C-suite
executives.
The cases we studied occurred in 125 countries
throughout the world, which helps us develop a global
view of the costs, methods, victims, and perpetrators of
these crimes. Figure 1 shows the number of cases from
nine key geographical regions, along with the medi-
an loss per fraud in each of those regions. (Readers
should note that the number of cases per region largely
reflects the geographical distribution of ACFE mem-
bership, so this data should not be taken to mean that
fraud is more or less likely in any particular region.)
Our hope is that the findings in this report will be of
value to anti-fraud professionals, organizational man-
agers, researchers, and the public at large. Readers
will find a wealth of information about the methods,
causes, costs, and indicators of occupational fraud, as
well as important information on how to prevent and
detect it. This study is the 10th edition of the Report
to the Nations, and occupational fraud remains an
enormous threat to the global economy, just as it was
when we published the first edition in 1996. But in the
time since that first report, we have seen organiza-
tions make tremendous strides in terms of awareness,
along with significant advancements in their ability to
combat these crimes. Such advances are only possi-
ble when there is a true understanding of the nature
and extent of the threat that must be dealt with. We
publish this 2018 Report to the Nations hoping it will
advance the collective understanding and awareness
of occupational fraud risk for all those concerned.

FIG. 1 Countries with reported cases and median loss for each region2

United States CASES: 1,000 (48%) Sub-Saharan Africa CASES: 267 (13%) Asia-Pacific CASES: 220 (11%)
MEDIAN
LOSS: $108,000 MEDIAN
LOSS: $90,000 MEDIAN
LOSS: $236,000

Latin America Middle East

Western Europe CASES: 130 (6%) and the Caribbean CASES: 110 (5%) and North Africa CASES: 101 (5%)
MEDIAN
LOSS: $200,000 MEDIAN
LOSS: $193,000 MEDIAN
LOSS: $200,000

Eastern Europe and

Southern Asia CASES: 96 (5%) Western/Central Asia CASES: 86 (4%) Canada CASES: 82 (4%)

LOSS: $100,000 $150,000 $200,000

MEDIAN MEDIAN MEDIAN
LOSS: LOSS:

2
Geographical information was provided in 2,092 of the cases submitted. See pgs. 56–73 for lists of cases submitted by country.

Introduction Report to the Nations 7

 THE COST OF
OCCUPATIONAL
FRAUD
How much money do
organizations lose as a
result of fraud?
Anti-fraud professionals know just
how devastating a fraud can be to
its victims. But they are not the only
ones who benefit from insight into
the amount of damage that fraud
causes organizations and their stake-
holders. Business leaders need to
understand how much is at stake
as they assess their risks and make
resource-allocation decisions. Reg-
ulators need to determine where to
focus their enforcement efforts. In-
vestors and customers need to make
informed decisions about where
to direct their own money. And the
media desires context and direction
for helping to raise awareness of the
issue to the general public.
8 The Cost of Occupational Fraud Report to the Nations
Accordingly, providing a measure of the cost of fraud
is an incredibly important endeavor. It is also an
incredibly difficult one, given the number of unknown
factors required to make such an estimate. No one
knows the amount of frauds that go undetected or
unreported, and even for those frauds that do come to
light, the full amount of loss might never be calculated.
Such limitations mean that any attempts to quantify
the global amount of fraud will be imperfect.
Projecting Total Fraud Losses
Based on Imperfect Data
Even with these limitations on projecting the total
amounts lost to fraud, however, we know that such a
projection has an important place in the fight against
fraud. Consequently, we asked survey participants,
based on their professional experience, what per-
centage of revenues they believe a typical organiza-
tion loses to fraud each year. The median response
provided by these CFEs is that organizations lose 5%
of their annual revenues to fraud. While this number
is only a general estimate based on the opinions of
the CFEs who took part in our study, it represents the
collective observations of more than 2,000 anti-fraud
experts who together have investigated hundreds
of thousands of fraud cases. To place their estimate
in context, if the 5% loss estimate were applied to
the 2017 estimated Gross World Product of USD
79.6 trillion, it would result in a projected total global
fraud loss of nearly USD 4 trillion.3 To be clear, this
number is only an estimate and, given the limitations
described above, it is unlikely we will ever be able
to calculate the true cost of fraud on a global scale.
But we can be certain that the amount of damage is
incredibly large, and this estimate, provided by an-
ti-fraud professionals who work to prevent and detect
fraud on a daily basis, helps give us some insight into
just how big the problem may be.
The Fraud Costs We Know
Determining total fraud losses—whether globally, re-
gionally, by industry, or even within a specific organiza-
tion—is outside the primary scope of our study. Instead,
we focus on analyzing known data to better under-
3
See https://www.cia.gov/library/publications/the-world-factbook/geos/
xx.html (retrieved March 22, 2018).
stand the risks posed by occupational fraud. To FIG. 2 How much does an occupational fraud cost
that end, we examined the losses incurred in the the victim organization?
actual cases of fraud reported to us to learn about Less than $200,000
how fraud affects its victims. 55%

The total loss caused by the cases in our study $200,000–$399,999

exceeded USD 7.1 billion. While we do not know
4
11%
the total number of cases of fraud that occurred
globally during our study period, it is safe to as- $400,000–$599,999
sume that the 2,690 cases included in our study 7%
represent only a tiny fraction of the frauds com-
mitted against organizations worldwide during $600,000–$799,999
that time. Thus, the USD 7.1 billion in known loss- 3%
es—while staggering on its own—does not come
$800,000–$999,999
close to representing the total amount lost to
fraud. The true global cost of fraud is likely mag- 2%
nitudes higher, especially when factoring in the
$1 million or more
indirect costs, such as reputational harm and loss
of business during the aftermath of a scandal. 22%

The mean, or average, loss due to the frauds in

our study was USD 2.75 million,5 which is also an
Throughout this report, we further examine
enormous amount when considering how much
these losses through different lenses, based
damage such a loss represents to most organi-
on the specific schemes, victim organizations,
zations. However, due to the presence of several
perpetrators involved, and other factors.
very large frauds in our data, this amount likely
We hope that our research into and analysis of these cases
does not illustrate the typical fraud case. Conse-
helps shed additional light on the way that fraud impacts
quently, throughout this report we use median
the global business community and its stakeholders.
loss calculations, rather than mean, to provide
a more accurate representation of how fraud
typically affects organizations.

The median loss for all cases in our study was

USD 130,000. Figure 2 shows the loss distribution
of the cases. While 55% caused less than USD
200,000 in financial damage, more than one-fifth
resulted in a loss of at least USD 1 million.

4
The total losses represented in our study were actually signifi-
cantly higher than USD 7.1 billion. However, our survey results
included a few cases with losses so large that including them in the
total loss figure may have enabled them to be identified. To avoid
compromising the confidentiality of our survey participants, we
winsorized the top and bottom 1% of the data used in this total loss
calculation (i.e., assigned all cases in the top 1% and bottom 1% the
same value as the 99th percentile and 1st percentile, respectively).
While including those cases would increase the total loss amount
figure substantially, we believe it prudent to both ensure those
cases remain unidentified and conservatively report loss amounts.

5
As with the total loss figure, the top and bottom 1% of the data
were winsorized for purposes of the average loss calculation.

The Cost of Occupational Fraud Report to the Nations 9

 HOW
OCCUPATIONAL
FRAUD IS FIG. 3 How is occupational fraud committed?

COMMITTED 89%

What methods do
fraudsters use to
commit their schemes?

PERCENT OF CASES
One of the goals of the first Report to the
Nation was to examine the methods by 38%
which fraudsters commit their schemes,
and we have continued this line of study in
every subsequent report. Over the last two
decades, even with tremendous technolog- 10%
ical development and numerous changes in
the global business and regulatory environ-
ments, our research shows that occupation- Asset Financial
misappropriation Corruption statement fraud
al fraud falls into several time-tested cate-
gories. The taxonomy of these categories
is illustrated in the Occupational Fraud and
$114,000
Abuse Classification System, also known as
the Fraud Tree, as depicted in Figure 4.
$250,000
MEDIAN LOSS

Categories of Occupational Fraud

Of the three primary categories of occupational fraud,
asset misappropriations are by far the most common,
occurring in 89% of the cases in our study. However,
they are also the least costly, causing a median loss of
USD 114,000. Corruption schemes are the next most
common form of occupational fraud; 38% of the cases
in our study involved some form of corrupt act. These
schemes resulted in a median loss to the victim organi-
zations of USD 250,000. The least common and most
costly form of occupational fraud is financial statement
$800,000
fraud, which occurred in 10% of the cases and caused a
median loss of USD 800,000.

10 How Occupational Fraud Is Committed Report to the Nations

 FIG. 4 Occupational Fraud and Abuse Classification System (the Fraud Tree)6

Corruption Asset Misappropriation Financial Statement Fraud

Net Worth/ Net Worth/

Conflicts of Illegal Gratuities Economic Net Income Net Income
Interest Bribery Extortion Overstatements Understatements

Purchasing Invoice Timing Timing

Schemes Kickbacks Differences Differences

Sales Fictitious Understated

Bid Rigging Revenues Revenues
Schemes

Concealed Overstated
Liabilities and Liabilities and
Expenses Expenses

Improper Improper
Asset Asset
Valuations Valuations

Improper Improper
Disclosures Disclosures

Cash Inventory and All

Other Assets

Theft of Cash Theft of Cash Fraudulent Misuse Larceny

on Hand Receipts Disbursements

Asset
Requisitions
Billing Payroll Expense Check and Register and Transfers
Skimming Cash Larceny Reimbursement Payment
Schemes Schemes Disbursements
Schemes Tampering
False Sales
and Shipping
Shell Ghost Mischaracterized
Refunds Employee Forged Maker False Voids
Sales Receivables Company Expenses
and Other Purchasing
and Receiving
Non- Overstated
Accomplice Falsified Forged
Write-Off Expenses Endorsement False Refunds
Unrecorded Vendor Wages
Schemes Unconcealed
Larceny
Personal Commission Fictitious
Lapping Purchases Schemes Altered Payee
Understated Expenses
Schemes

Multiple Authorized
Unconcealed Reimbursements Maker

6
The definitions for many of the categories of fraud schemes in the Fraud Tree are found in the Glossary of Terminology on pg. 78. In previous reports, the category
check and payment tampering was referred to simply as check tampering. However, to better reflect the increasing shift toward electronic payment methods, we
have changed the category title.

Report to the NationsFraud

How Occupational Committed Report
HowIsOccupational to Committed
Fraud Is the Nations 11
 When assessing an FIG. 5 How often do fraudsters commit more than one type of occupational
organization’s fraud risks fraud?
and designing anti-fraud
controls, it is important to
remember that fraudsters
typically seize whatever Financial
statement fraud
opportunity arises when
committing their schemes.
Thus, many frauds— Asset
including nearly one-third misappropriation
Corruption
of the cases in our study,
as illustrated in Figure
5—involve more than one
form of occupational fraud.

Asset Misappropriation
Sub-Schemes
Within the category of Asset misappropriation only 57%
asset misappropriation,
Asset misappropriation and corruption 23%
our research shows that
there are several dis- Corruption only 9%
tinct sub-categories of
schemes. The heat map Corruption, asset misappropriation, and financial statement fraud 4%
in Figure 6 illustrates the
Asset misappropriation and financial statement fraud 3%
relative frequency and cost
of each of these scheme Financial statement fraud only 1%
types. The schemes falling
Corruption and financial statement fraud 1%
in the darkest area of the
heat map—check and pay-
ment tampering,7 billing,
and theft of noncash as- FIG. 6 What asset misappropriation schemes present the greatest risk?
sets—rank among the most
common and the costliest Check and payment tampering
$150,000 (12%)
scheme types and thus
typically pose the greatest
Billing
risk to organizations. $100,000 (20%)
Noncash
$98,000 (21%)
7
In previous reports, this category
was referred to simply as check
tampering. However, to better Cash larceny
reflect the increasing shift toward $75,000 (11%)
electronic payment methods, we Payroll
$63,000 (7%)
have changed the category title to Skimming
check and payment tampering. $50,000 (11%)
Expense reimbursements
Register disbursements $31,000 (14%)
$29,000 (3%) Cash on hand
$20,000 (15%)

LESS RISK MORE RISK

12 How Occupational Fraud Is Committed Report to the Nations

CORRUPTION

Corruption represents one of the most significant fraud risks for organizations in many
industries and regions. Understanding the specific factors involved in corruption schemes
can help organizations effectively prevent, detect, and investigate them.

Percent of cases involving corruption Industries with highest

proportion of

40% 36% 60% CORRUPTION CASES:

WESTERN EASTERN EUROPE AND
EUROPE WESTERN/CENTRAL ASIA
CANADA

30% 51%

UNITED STATES
62%
49%

53%
ASIA-PACIFIC
MIDDLE EAST AND
____NORTH AFRICA SOUTHERN
ASIA
ENERGY
51%
SUB-SAHARAN
AFRICA

LATIN AMERICA
AND THE 49%
CARIBBEAN

51%
MANUFACTURING

70%
of corruption cases were perpetrated by
someone in a POSITION OF AUTHORITY
82%
of corruption cases were
committed by males
50%
GOVERNMENT
AND PUBLIC
ADMINISTRATION
38% MANAGER WHILE ONLY

27% EMPLOYEE
18%
3% OTHER 32%
50 %
OWNER/ of corruption cases were
EXECUTIVE committed by females

OF CORRUPTION CASES

TOP RED FLAGS were detected

by a tip
in corruption cases

43% Living beyond means

34% Unusually close association with vendor/customer

23% Financial difficulties

21% “Wheeler-dealer” attitude

How Occupational Fraud Is Committed Report to the Nations 13

 Duration of FIG. 7 How does the duration of a fraud relate to median loss?
Fraud Schemes 27%

Examining how long frauds

tend to last can also provide
insight into how they affect 19%
their victims. The median

PERCENT OF CASES
duration for all of the fraud
13%
cases in our study was 16
11%
months. However, it stands 10%
to reason that the longer a 8%
fraud goes undetected, the 6%
5%
larger the scheme will grow.
Figure 7 shows that frauds
that last over 60 months are
more than 20 times as costly 6 months 7–12 13–18 19–24 25–36 37–48 49–60 More than
or less months months months months months months 60 months
as those that are caught in the
first six months. Our data also $30,000
indicates that fraudsters tend $75,000

to start small and increase $125,000

their frauds rapidly over $200,000

MEDIAN LOSS

the first three years. Thus,

it is incredibly important for
organizations to implement
$400,000
proactive fraud detection $425,000

mechanisms to catch frauds $500,000

quickly and minimize their
damage (see pg. 18).

$715,000

CONCEALING FRAUD

An act of fraud typically involves not only the commission of the scheme itself, but also efforts
to conceal the misdeeds. Understanding the methods fraudsters use to cover their crimes can
help organizations better design prevention mechanisms and detect the warning signs of fraud.

TOP 8 CONCEALMENT METHODS USED BY FRAUDSTERS

55% 48% 42% 34% 31% 30% 29% 27%

Created fraudulent Altered physical Created fraudulent Altered transactions Altered electronic Destroyed physical Created fraudulent Created fraudulent
physical documents documents transactions in the in the accounting documents or files documents electronic journal entries
accounting system system documents or files

14 How Occupational Fraud Is Committed Report to the Nations

 We also examined the duration FIG. 8 How long do different occupational fraud schemes last?
of the cases reported to us Payroll
based on the type of scheme 30 months
involved. Figure 8 shows the
result of this analysis. The Check and payment tampering
24 months
payroll schemes in our study
tended to last the longest,
Financial statement fraud
with a median duration of 30 24 months
months, while schemes involv-
ing cash on hand and register Expense reimbursements
disbursements were both 24 months
typically uncovered one year
Billing
after they began.
24 months

Cash larceny
24 months

Corruption
22 months

Skimming
18 months

Noncash
18 months

Cash on hand
12 months

Register disbursements
12 months

How to Conceal: what to Conceal:

3
ONLY

%
����� �
Create, Alter, or Destroy? physical or electronic evidence?

OF CASES

80% 80%
Altered existing
DID NOT Created fraudulent
evidence
evidence
involve 21% 63% 12%

���
any attempts
to conceal
the fraud
Manager-level

43%
fraudsters are more
likely to alter evidence.
All of these
unconcealed Deleted or Owners/executives are ELECTRONIC PHYSICAL
cases were destroyed evidence more likely to create BOTH
or delete evidence. EVIDENCE EVIDENCE
committed
by owners/
executives

How Occupational Fraud Is Committed Report to the Nations 15

 DETECTION
How are fraud schemes
initially detected?

Understanding the methods by

which occupational frauds are
detected is critical for both investi-
gating schemes and implementing
effective prevention strategies. We
asked survey participants to tell us
how the frauds they investigated
were initially detected, which helps
us understand how organizations
are most likely to discover frauds
in the future. This data also shows
how organizations can take steps
to detect fraud proactively, rather
than passively.

Initial Detection of
Occupational Frauds
Figure 9 shows that the leading detection
methods are tips, internal audit, and man-
agement review. This finding is not surpris-
ing, as these have been the three most com-
mon means of detecting occupational fraud
in every edition of the report since 2010.
Collectively, these three detection methods
were cited in 68% of the cases in our current
study. Tips were by far the most common
means of detection at 40% of cases—more
than internal audit (15%) and management
review (13%) combined.

16 Detection Report to the Nations

Tip Sources
Since tips are the most common detection method,
it is important to understand where those tips come
from. Figure 10 shows that slightly more than half
of all tips (53%) were provided by employees of the
victim organizations. Meanwhile, nearly one-third
(32%) of the tips that led to fraud detection came
from people outside the organization: customers,
vendors, and competitors. Active cultivation of tips
and complaints, such as the promotion of fraud
hotlines, is often geared primarily toward employees,
but this data suggests organizations should also
consider promoting reporting mechanisms to outside
parties, especially customers and vendors. Addition-
ally, 14% of tips came from an anonymous source,
demonstrating that a significant portion of those who
reported fraud did not want their identities known.
Whistleblowers often have a fear of being identified
or retaliated against, which is why it is important that
they be able to make reports anonymously where
such practice is legally permissible.

FIG. 9 How is occupational fraud initially detected? FIG. 10 Who reports occupational fraud?
Tip
40%

Internal audit
15%

Management review
13%
Employee
By accident 53%
7%

Other
6%

Account reconciliation Customer

5% 21%

Document examination
4%

External audit Anonymous

4% 14%

Surveillance/monitoring
3%
Vendor
8%
Notified by law enforcement
2%
Other
IT controls 5%
1%
Competitor
Confession 3%
1%
Shareholder/owner
2%

Internal source External source Other

Detection Report to the Nations 17

 Median Loss and Duration
by Detection Method
In addition to determining the most common meth-
ods of detection, we also analyzed the median loss
and duration of fraud schemes based on how they
were uncovered. Our results indicate that there is a
correlation between the way in which occupational
fraud schemes are detected and the severity of the
fraud. More importantly, the data points to steps or-
ganizations can take to detect fraud proactively and,
in doing so, mitigate losses.
Figure 11 portrays the median loss and median dura-
tion for all cases, based on the method by which they
were detected. We grouped each of these detection
methods into three categories: active, passive, or
potentially active or passive. Active detection methods
(shaded teal) involve a deliberate search for miscon-
duct from someone within the organization or an inter-
nal control designed to detect fraud. Passive detection
methods (shaded black) refer to cases in which the
organization discovers the fraud by accident, confes-
sion, or unsolicited notification by another party. We
classified tips and external audit as potentially active or
passive detection methods because those mechanisms
might or might not involve proactive efforts specifically
to identify fraud, depending on the circumstances.
Our findings show that median duration and median
loss were relatively low in frauds that were detected
by active methods. Frauds detected passively tended
to last much longer and have larger median losses.
For instance, frauds detected actively by IT controls
tended to last five months and cause a median loss of
USD 39,000, compared to schemes detected passive-
ly through notification from law enforcement, which
tended to last two years and cause a median loss of
almost USD 1 million. The key takeaway from this data
is that organizations can reduce the impact of fraud
by pursuing internal controls and policies that actively
detect fraud, such as thorough management review,
account reconciliation, and surveillance/monitoring.
Organizations that do not actively seek out fraud are
likely to experience schemes that continue for much
longer and at a higher cost.

FIG. 11 How does detection method relate to fraud duration and loss?

30 Active detection method

$186,000
Potentially active or passive detection method
MEDIAN MONTHS TO DETECTION

24 months
25 Passive detection method
$150,000
20 $250,000 24 months $935,000
23 months 24 months

15 $130,000 $126,000
18 months 18 months
$110,000
10 $108,000 14 months
$52,000 12 months
11 months
5
$50,000
$39,000 6 months
5 months
0
n
ls

ing

ion

it

e
w

Tip

nt
it

tio

sio
ud

lic
ud
ro

vie

ide
iat
or

po
ina
nt

la
la

es
re
nit

c
cil
co

na

ac

nf
na

by
am
nt
mo

on

Co
IT

r
er

me

te

ed
ex

By
ec
e/

Int

Ex

tifi
ge

nt
tr
nc

me

No
un

na
illa

co

Ma

cu
rve

Ac

Do
Su

18 Detection Report to the Nations

HOTLINES AND REPORTING MECHANISMS

The presence of a hotline or other reporting mechanism affects

how organizations detect fraud and the outcome of the case.

Fraud losses were

63 $200,000
LOREM IPSUM
%
of victim
organizations
had hotlines
46%
OF CASES
DETECTED
BY TIP

HOTLINES
30%
OF CASES
DETECTED
BY TIP

NO HOTLINES

Corruption is particularly likely

Organizations
with hotlines
detected fraud by
tip more often

50% SMALLER
at organizations
$100,000
DOLOR SIT
to be detected by tip
with hotlines Asset Financial

��� ��� ���

Corruption Misappropriation Statement Fraud
than those without

Organizations without hotlines were 50%

DETECTED
38%
DETECTED
38%
DETECTED
more than TWICE AS LIKELY to detect BY TIP BY TIP BY TIP

fraud by accident or by external audit

Telephone hotlines are most popular, but

whistleblowers use various reporting mechanisms NOT ALL TIPS COME
THROUGH HOTLINES
Web-based/ When a reporting mechanism is not
Telephone hotline Email online form used, whistleblowers are most likely
to report to:

42% 26% 23% DIRECT SUPERVISOR 32%

EXECUTIVE 15%
Mailed letter/form Other Fax FRAUD INVESTIGATION TEAM 13%
16% 9% 1% COWORKER 12%
INTERNAL AUDIT 10%
Detection Report to the Nations 19
 VICTIM ORGANIZATIONS
How are different kinds of organizations
affected by occupational fraud?

To better understand the victim organizations in our study, we asked

participants to provide information about
T Y P Ethe
O F Vorganizations’
I C T I M O R G A N I Z A T type,
I O N — size,
FREQUENCY AND MEDIAN LOSS
and industry, as well as the mechanisms that the organizations had in
place to prevent and detect fraud at the time the scheme occurred.

Type of Organization FIG. 12 What types of organizations are victimized by

occupational fraud?
As shown in Figure 12, more than 70% of
42%
the frauds in our study occurred at for-prof-
it organizations, with 42% of the victim
PERCENT OF CASES

29%
organizations being private companies and
29% being public companies. The private
16%
companies in our study suffered the greatest
9%
median loss, at USD 164,000. Not-for-profit
4%
organizations were the victim in only 9% of
frauds and had the smallest median loss of Private Public
Government Not-for-profit Other
company company
USD 75,000; however, for many not-for-profit
entities, financial resources are extremely
limited and a loss of USD 75,000 can be
particularly devastating.
MEDIAN LOSS

Level of Government Organization $75,000

Resources and operations vary greatly by

level of government, meaning that fraud can $117,000 $118,000 $120,000
affect these organizations differently. Con-
sequently, we broke down the government
fraud cases in our study based on the level $164,000

of government agency involved. While there

was not a large variation in the percentage
FIG. 13 What levels of government are victimized

38+31+265F
of schemes that occurred at local, state/ by occupational fraud?
provincial, and national levels, the frauds at
national-level agencies tended to be much
larger, causing a median loss approximately National: 38% Local: 31%
twice as large as the losses experienced by ($200,000*) ($92,000*)

local and state/provincial governments (see State/provincial: 26% Other: 4%

($110,000*) ($58,000*)
Figure 13).
*Dollar amounts are median loss.

20 Victim Organizations Report to the Nations

Size of Organization
The size of an organization’s staff can directly affect both the opportunity for
fraud and the ability to enact certain anti-fraud mechanisms. Larger entities
typically have more resources to invest in their anti-fraud programs, as well as
a greater ability to separate duties among staff members to help prevent fraud;
however, the large staff size can also mean more potentially dishonest employ-
ees who might attempt schemes and more complex processes and transac-
tions, which can increase the risk of fraud.

To provide some insight into the relative risks of fraud for organizations of
various sizes, we analyzed the cases reported to us based on the number of
employees at the victim organization. Figure 14 shows that small organiza-
tions (those with fewer than 100 employees) both experienced the greatest
percentage of cases in our study (28%) and suffered the largest median loss
(USD 200,000). See “Fraud in Small Businesses” on pgs. 22–23 for more
information about how fraud affects these organizations.

FIG. 14 How does an organization’s size relate to its occupational fraud risk?
28%
26%
24%
22%
PERCENT OF CASES

<100 100–999 1,000–9,999 10,000+

employees employees employees employees
MEDIAN LOSS

$100,000 $100,000

$132,000

$200,000

21
 FRAUD IN SMALL BUSINESSES
Fraud can be especially devastating to small businesses. These organizations typically have
fewer resources to both prevent and recover from a fraud, and they often require an increased
level of trust in employees due to a lower ability to implement robust anti-fraud controls.

SMALL BUSINESSES
LOSE ALMOST
TWICE AS MUCH
PER SCHEME TO
OCCUPATIONAL FRAUD

0 EMPLOYE + EMPLOYE
10 E 00 E

S
<

1
S

Median loss:
Median loss:

$200,000 $104,000

Frauds detected by tip: 29% 44%

Frauds caused by
lack of internal controls: 42% 25%
Frauds perpetrated by
an owner/executive: 29% 16%
22 Victim Organizations Report to the Nations
 32%
Corruption
43%
29%
Billing
18%
Check and 22%
payment tampering 8%
Expense 21%
reimbursements 11%

Skimming 20% Small businesses face

DIFFERENT RISKS
8%
20%
Cash on hand
14%
16%
than larger organizations
Noncash
22%
Financial 16%
statement fraud 7%

Cash larceny 14%

9%

Payroll 13% <100 Employees

5%
Register 3% 100+ Employees
disbursements 2%
0% 10% 20% 30% 40%

PERCENT OF CASES

Small businesses
fewer
typically have 100%

anti-fraud Controls
than larger organizations,
80%
leaving them more
vulnerable to fraud
100+ Employees 60%

40%

20%
<100 Employees
0%
rs on eam ents is its es es cy s e ee en
t
ng ts w ct ts
o we cati t alys a ud utiv o ye oli ra
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l r m n c l p g m r m r o m
leb ry v on,
a o ss a e p ud t pro
H
om epa
p te t c te
ist se g/ ris /exe m re ta en of l sta
h to cti as orin u rp r s or e ti-fra o r
d it c it d c ial ia ls em d e a
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io n d it o
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fr P d na e te
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rn
te
Ex Victim Organizations Report to the Nations 23
 Industry of Organization
In addition, we examined the cases reported to us based on the industry of the victim organization. The greatest num-
ber of cases in our study occurred in the banking and financial services, manufacturing, and government and public
administration sectors. Readers should note that this data likely represents the industries that most often employ
CFEs, rather than the industries that are most susceptible to fraud. However, information about occupational fraud in
various industries can be useful for benchmarking purposes.

FIG. 15 How does occupational fraud affect organizations in different industries?

17+83+R
Banking and
366
Cases

financial services
M E D I A N LO S S :

$110,000
10+90+R
Manufacturing
212
7%
Cases

M E D I A N LO S S :

$240,000
9+91+R
Government and
201
14%
Cases

public administration
M E D I A N LO S S :

$125,000
7+93+R 5+95+R
Health care
158
Cases

M E D I A N LO S S :

$100,000
Retail
M E D I A N LO S S :

$50,000
108
Cases

5+95+R Insurance
101
Cases

M E D I A N LO S S :

$153,000
4+96+R Education
97
Cases

M E D I A N LO S S :

$68,000
4+96+REnergy
94
Cases

M E D I A N LO S S :

$300,000
4+96+R 4+96+R
Construction
90
Cases

M E D I A N LO S S :

$227,000
Other
M E D I A N LO S S :

$70,000
84
Cases

4+96+R 83
Cases

Transportation and
warehousing
M E D I A N LO S S :
4+96+R 76
Cases

Food service and hospitality

M E D I A N LO S S :

$90,000
3+97+R
Technology
68
Cases

M E D I A N LO S S :

$150,000
3+97+R 3+97+R
or social services
60
Cases
Religious, charitable,
M E D I A N LO S S :

$90,000
58
Cases

Services (professional)
M E D I A N LO S S :

$258,000
$140,000

2+98+R 51
Cases

Arts, entertainment,
and recreation
M E D I A N LO S S :
2+98+R
Telecommunications
50
Cases

M E D I A N LO S S :

$100,000
2+98+R
Real estate
35
Cases

M E D I A N LO S S :

$180,000
1+99+R 1+99+R 32
Cases
Agriculture, forestry,
fishing, and hunting
M E D I A N LO S S :

$136,000
Utilities
M E D I A N LO S S :

$150,000
29
Cases

$88,000

1+99+R
Services (Other)
28
Cases

M E D I A N LO S S :

$82,000
1+99+R Mining
27
Cases

M E D I A N LO S S :

$208,000
1+99+R
Communications and
publishing
24
Cases

M E D I A N LO S S :
1+99+R
Wholesale trade
24
Cases

M E D I A N LO S S :

$110,000
$525,000
24 Victim Organizations Report to the Nations
Most Common Schemes by Industry
Understanding the frequency of specific fraud schemes within different industries can help organizations assess
and design controls to guard against the schemes that pose the most significant threats. Figure 16 provides a heat
map showing the relevant risk for each category of occupational fraud in every industry that had at least 50 report-
ed cases in our study. Boxes are shaded from light to dark red based on the respective level of occurrence, with
darker boxes indicating higher-frequency schemes.

FIG. 16 What are the most common occupational fraud schemes in various industries?

Financial statement fraud

Expense reimbursements

Register disbursements
Check and payment
Cash on hand
Cash larceny

Corruption
tampering

Skimming
Noncash

Payroll
Billing

INDUSTRY Cases
Banking and financial
338 11% 14% 23% 12% 36% 7% 8% 11% 2% 3% 9%
services

Manufacturing 201 27% 8% 15% 12% 51% 18% 10% 28% 5% 3% 7%

Government and public

184 15% 11% 11% 9% 50% 11% 5% 22% 7% 2% 11%
administration

Health care 149 26% 7% 13% 13% 36% 16% 11% 19% 17% 1% 12%

Retail 104 20% 10% 19% 9% 28% 8% 12% 34% 5% 13% 13%

Education 96 23% 19% 19% 6% 38% 18% 6% 19% 6% 0% 14%

Insurance 87 20% 9% 3% 18% 45% 8% 7% 11% 3% 1% 11%

Energy 86 20% 2% 10% 12% 53% 10% 3% 27% 7% 2% 10%

Construction 83 37% 12% 8% 19% 42% 23% 16% 23% 14% 1% 13%

Transportation and
79 25% 8% 8% 9% 46% 15% 8% 28% 3% 3% 13%
warehousing
Food service and
75 17% 16% 20% 11% 29% 12% 12% 24% 7% 0% 23%
hospitality

Technology 62 26% 5% 10% 8% 42% 21% 16% 32% 8% 0% 6%

Religious, charitable, or
58 40% 9% 22% 19% 34% 29% 10% 19% 22% 3% 17%
social services

Services (professional) 54 26% 17% 15% 26% 17% 30% 13% 13% 15% 0% 15%

Arts, entertainment,
50 14% 20% 36% 6% 32% 12% 8% 18% 4% 8% 28%
and recreation

LESS RISK MORE RISK

Victim Organizations Report to the Nations 25

 As noted in Figure 16 on pg. 25, corruption poses Effectiveness of Anti-Fraud Controls
a significant risk to several industries, with the most
Demonstrating the return on investment in anti-fraud
common occurrence of corruption schemes in the
initiatives can be a difficult task, as it is nearly impos-
energy, manufacturing, and government and public
sible to measure the amount of fraud prevented by a
administration sectors. Skimming schemes were also
specific control. However, many anti-fraud profession-
notably more common in the arts, entertainment, and
als find themselves needing to make a business case
recreation and the food service and hospitality indus-
to justify additional fraud prevention and detection
tries than elsewhere, while payroll schemes occurred
initiatives. To provide some visibility into the relative ef-
more frequently in the religious, charitable, or social
fectiveness of various anti-fraud controls, we compared
services and the health care sectors. Interestingly, the
the losses experienced by the victim organizations that
cases that occurred in religious, charitable, or social
had specific controls in place against the losses experi-
services organizations also tended to involve the most
enced by those that had not implemented each control.
crossover between scheme types, meaning the perpe-
The results of this analysis are provided in Figure 18
trators in these cases used many different schemes to
on pg. 28. Interestingly, the presence of every control
defraud the victims, rather than limiting their frauds to
we analyzed was correlated with lower fraud losses.
one specific area.
For example, the use of proactive data monitoring and
analysis and surprise audits was associated with a
Anti-Fraud Controls more than 50% reduction in fraud losses.
at the Victim Organization
We similarly analyzed the duration of fraud schemes
The presence of a robust system of anti-fraud con-
based on the presence or absence of each anti-fraud
trols can be a powerful deterrent, as well as a proac-
control (see Figure 19 on pg. 29). Data monitoring and
tive prevention and detection mechanism, in the fight
analysis and surprise audits were correlated with the
against fraud. Thus, organizations can benefit from
most significant reductions in fraud duration; as these
knowing which anti-fraud controls are commonly
two controls were also associated with some of the
used by their peers, as well as which tend to be the
largest loss reductions, our data indicates that they are
most effective. To help explore this information, we
among the most useful tools in the fight against fraud.
provided survey respondents with a list of 18 enti-
ty-level, anti-fraud controls and asked which, if any,
were present at the victim organization at the time
the fraud occurred. As noted in Figure 17, 80% of the
organizations had a code of conduct and underwent
external financial statement audits, while 73% had
internal audit departments, and 72% had company
management certify the financial statements. On the
other end of the spectrum, 19% of organizations had
policies requiring job rotation or mandatory vacation,
and only 12% provided rewards for whistleblowers.

26 Victim Organizations Report to the Nations

FIG. 17 What anti-fraud controls are most common?
Code of conduct

80%
External audit of financial statements

80%
Internal audit department

73%
Management certification of financial statements

72%
External audit of internal controls over financial reporting

67%
Management review

66%
Hotline

63%
Independent audit committee

61%
Employee support programs

54%
Anti-fraud policy

54%
Fraud training for employees

53%
Fraud training for managers/executives

52%
Dedicated fraud department, function, or team

41%
Formal fraud risk assessments

41%
Surprise audits

37%
Proactive data monitoring/analysis

37%

Job rotation/mandatory vacation

19%

Rewards for whistleblowers

12%

Victim Organizations Report to the Nations 27

 FIG. 18 How does the presence of anti-fraud controls relate to median loss?

$250,000

PERCENT
REDUCTION
$200,000 56%
52%
50% 51%
50% 50%
46% 47%
43%
38% 41%
$150,000 38%
35%
33%
29%
20% 23%
12%
Median loss without controls
$100,000
Median loss with controls

$50,000

Co
Pr
Su

de
oa
Ex

rp
Ma

cti

of
te
Ho

ris
An

v
rn

co
na

ed
ea
tlin
Int

al
Ma

ti-

nd
ge
er

ud

at
Fr

au
fra

uc
na

m
Fo

am
na
au

its
dit
ud
Em

en

t
ge
rm
Fr

la
dt

0
De

on
t

of
po
Ex

plo

me
au

ud
al

r
r
dic udit

e
Jo

ito
i
te

lic
dt
Ind

n
v
ini
fra
ye

nt

it d

i
br

te
Re

rn

e
at

rin
y
ra

ng
es

ce

w
ud
ep

rn
al

e
ed
ot
w

g/
i

pa
n

rti

al
up
ar

en

fo
at

ris
ing

an
fra

fic

rtm

co
re
d

ion

po
d

aly
sf

en

ud ncia

at
fo

nt
as

mp ents
rt

en
/
or

of

ion
ma

sis
rm

ro
ta

se
de

pr

t
loy
wh

ls
fin
ud

nd

ss
og
an
pa

of

ov
ee
a

m
ist

it c

at

r
ag
rtm

fin
am

er
s
or
leb

om

er

an
en
y

fin
s
l

s/e
low

cia
v

sta
mi

t, f

an
a

xe
ca
tte

ls
er

un

cia
e

cu
tio

ta
s

me
e

cti

lr
tiv

te
n

ep
on
nt

me
es
s

or
,o

nt

tin
rt

g
ea
m

Percent Control Control not Percent

Control of cases in place in place reduction
Code of conduct 80% $110,000 $250,000 56%
Proactive data monitoring/analysis 37% $80,000 $165,000 52%
Surprise audits 37% $75,000 $152,000 51%
External audit of internal controls over financial reporting 67% $100,000 $200,000 50%
Management review 66% $100,000 $200,000 50%
Hotline 63% $100,000 $200,000 50%
Anti-fraud policy 54% $100,000 $190,000 47%
Internal audit department 73% $108,000 $200,000 46%
Management certification of financial statements 72% $109,000 $192,000 43%
Fraud training for employees 53% $100,000 $169,000 41%
Formal fraud risk assessments 41% $100,000 $162,000 38%
Employee support programs 54% $100,000 $160,000 38%
Fraud training for managers/executives 52% $100,000 $153,000 35%
Dedicated fraud department, function, or team 41% $100,000 $150,000 33%
External audit of financial statements 80% $120,000 $170,000 29%
Job rotation/mandatory vacation 19% $100,000 $130,000 23%
Independent audit committee 61% $120,000 $150,000 20%
Rewards for whistleblowers 12% $110,000 $125,000 12%

28 Victim Organizations Report to the Nations

FIG. 19 How does the presence of anti-fraud controls relate to the duration of fraud?

25
58%
54%
50% 50% PERCENT
50% 50% REDUCTION
50% 50%
50%
20 50% 50%
50%
MEDIAN MONTHS TO DETECTION

48%
46%
44%
38% 40%
33%
15

Median duration without controls

10 Median duration with controls

Pr
Su

oa
Int

rp
Ma

cti
er
Ex

ris
Ma

na

ve
na
Ho

te

ea
An

la
na

ge
Fr

rn
tlin poli

da
ti-

ud
Fr

au

ud
al
ge

me
Fo

ta
fra

e
au aud

i
au
dt

it d fica

t
me
Re

rm

mo
nt
ud
dt
Ind f con
Co atio

dit
ra
wa

ep
nt
al
Jo

ce

nit
ra

ini
ep
de

of
fr

a
br

re
rd
De

rti
ini
Ex

or
ng

r
en
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tm
vie
s

i
o

cy
ot

ng

nt
te

ing
dic

fo
de

fo

e
er
rn
plo

w
ris

nt
rw

fo

/an
at

re

ion
nt

na
a

rm
ed
la
ye

ka
n/

du

mp
his

aly
au

lc

o
ud

m
es

fra

an
ct

ss

f fi
on
dit

tle

sis
loy
an
it o

es
up

ag s
ud

n
tro
blo
co
da

ee

an
sm
po

e
f fi

de

ls
mm
t

rs/
w

cia
o

en
rt

na

ov
er
r
pa

ex
y

ls
pr

itt

t
nc

er
va
r

ec
og

tm

ta
ee
ial

fin
ca

ut

te
ra

en
sta

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an

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ms

t,

cia
s
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fu

n ts
me

nc

lr
ep
tio
nt

or
s

n,

tin
or

g
te
am

Percent Control Control not Percent

Control of cases in place in place reduction
Proactive data monitoring/analysis 37% 10 months 24 months 58%
Surprise audits 37% 11 months 24 months 54%
Internal audit department 73% 12 months 24 months 50%
Management certification of financial statements 72% 12 months 24 months 50%
External audit of internal controls over financial reporting 67% 12 months 24 months 50%
Management review 66% 12 months 24 months 50%
Hotline 63% 12 months 24 months 50%
Anti-fraud policy 54% 12 months 24 months 50%
Fraud training for employees 53% 12 months 24 months 50%
Fraud training for managers/executives 52% 12 months 24 months 50%
Formal fraud risk assessments 41% 12 months 24 months 50%
Rewards for whistleblowers 12% 9 months 18 months 50%
Independent audit committee 61% 12 months 23 months 48%
Code of conduct 80% 13 months 24 months 46%
Job rotation/mandatory vacation 19% 10 months 18 months 44%
Dedicated fraud department, function, or team 41% 12 months 20 months 40%
External audit of financial statements 80% 15 months 24 months 38%
Employee support programs 54% 12 months 18 months 33%

Victim Organizations Report to the Nations 29

 Background Checks FIG. 20 Was a background check run on the perpetrator prior to hiring?
Effectively preventing fraud
Did the check reveal
begins with ensuring that existing red flags?
the organization hires ethical
Yes 10%
employees. As part of our
study, we examined whether
No 48% No 90%
the victim organizations ran
a background check on the
perpetrator prior to hiring him
or her, as well as whether the
background check revealed
any potential indicators of the
employee’s dishonesty. As Yes 52%
noted in Figure 20, 52% of the
organizations ran background
checks, while 48% did not.
Of the organizations that did
run a check before hiring the
perpetrator, 10% were alerted
to a red flag regarding the
perpetrator but chose to hire FIG. 21 What types of background checks were run
the person anyway. on the perpetrator prior to hiring?

We also asked about the Employment history 78%

types of background checks Criminal checks 75%
used by the victim organiza- Reference checks 55%
tions in our study. Figure 21
Education verification 50%
shows that these organiza-
Credit checks 36%
tions were most likely to look
into the individual’s employ- Other 4%
ment and criminal history, with
three-quarters or more of the
background checks covering
these areas.

30 Victim Organizations Report to the Nations

Internal Control Weaknesses that Contributed to Fraud
Understanding the factors that can lead to fraud is the foundation of preventing future occurrences. Conse-
quently, we asked survey respondents what they perceived to be the primary internal control weakness that
contributed to the fraud they reported. In 30% of cases, a simple lack of controls was the main factor that
enabled the fraud to occur, while another 19% of cases occurred because the perpetrator was able to override
the controls that had been put in place.

FIG. 22 What are the primary internal control weaknesses that contribute to occupational fraud?

Lack of internal controls 30%

Override of existing controls 19%

Lack of management review 18%

Poor tone at the top 10%

Lack of competent personnel in oversight roles 8%

Lack of independent checks/audits 4%
Other 6%
Lack of employee fraud education 2%

Lack of clear lines of authority 2%

Lack of reporting mechanism <1 %

Victim Organizations Report to the Nations 31

 We also analyzed these FIG. 23 How do internal control weaknesses vary by scheme type?
control weaknesses based
on the category of fraud Lack of internal controls
32%
involved in the scheme (see
25%
Figure 23). Not surprisingly, 29%
a poor tone at the top was
much more likely to be the Lack of management review
primary factor in financial 19%
15%
statement fraud and cor- 15%
ruption cases than in asset
misappropriation cases. Override of existing internal controls
However, it is interesting to 18%
21%
note that a lack of internal
14%
controls is more common in
asset misappropriation and Poor tone at the top
financial statement frauds, 9%
18%
while corruption schemes 23%
are more likely than other
schemes to involve an Lack of competent personnel in oversight roles
override of existing con- 8%
6%
trols. In addition, a lack 5%
of management review is
more commonly the reason Other
for asset misappropriation 5%
7%
schemes than other forms
8%
of fraud.
Lack of independent checks/audits
4%
3%
5%
Lack of employee fraud education
2%
3%
<1%
Lack of clear lines of authority
2%
2%
0%
Lack of reporting mechanism
<1%
1%
1%

Asset misappropriation Corruption Financial statement fraud

32 Victim Organizations Report to the Nations

PERPETRATORS
What does a typical fraudster look like?
We asked survey respondents to provide a broad range of information about
the fraud perpetrators they investigated, including the offenders’ conditions
of employment, basic demographics, prior misconduct, and behavior that
might have been warning signs of fraudulent activity. Our goal is to identify
common characteristics and risk profiles for those who commit occupational
fraud, which can help organizations better recognize fraud perpetrators or
those at risk for engaging in fraudulent activity.

Perpetrator’s Position FIG. 24 How does the perpetrator’s level of authority

relate to occupational fraud?
As seen in Figure 24, there is
a strong correlation between 44%

the fraud perpetrator’s level of

authority and the size of the
34%
fraud. While owners/execu-
PERCENT OF CASES

tives only committed 19% of the

frauds in our study, the schemes
committed by these individuals
19%
resulted in a median loss of USD
850,000, which was nearly six
times larger than the median
loss caused by managers, and 17
times larger than the median loss 3%
caused by low-level employees.
A significant correlation between Employee Manager Owner/executive Other
authority and fraud loss has
been found in every edition of $50,000
the report dating back to 1996.
This correlation likely reflects $150,000
$189,000
the fact that high-level fraudsters
tend to have greater access to
MEDIAN LOSS

an organization’s assets than

low-level personnel. They may
also have greater technical
ability to commit and conceal
fraud, and they might be able to
use their authority to override or
conceal their crimes in ways that
low-level employees cannot. $850,000

Perpetrators Report to the Nations 33

 One reason frauds committed by high-level perpe-
trators are more costly could be that their schemes FIG. 25 How does the perpetrator’s level of
authority relate to scheme duration?
tend to last longer. The median duration of a scheme
committed by an owner/executive was 24 months, Position Median months to detection
compared to 18 months for schemes committed by
Employee 12 months
managers and 12 months for those committed by
employees (See Figure 7 on pg. 14 for more informa- Manager 18 months
tion on the correlation between fraud duration and Owner/executive 24 months
median loss.).

Perpetrator’s Tenure
As Figure 26 shows, fraud losses tend to increase
based on how long the fraud perpetrator worked
for the victim organization. Perpetrators with
less than one year of tenure caused a median
loss of USD 40,000, while those with more than
ten years’ experience at the victim organization
caused a median loss of USD 241,000, more than
six times as high.

FRAUD COMMITTED BY OWNERS AND EXECUTIVES

Occupational frauds committed by owners/executives tend to be extremely

costly. How do these cases differ from non-owner/executive frauds?

MEDIAN LOSS
65%
of owner/executive
$850,000
OWNERS/EXECUTIVES
frauds involved
corruption

27%
of owner/executive
frauds involved financial
statement fraud

34% 6%
Non-ownerS/executives Non-ownerS/executives
$100,000
NON-OWNERS/
EXECUTIVES

Corruption and financial statement fraud are the

two costliest forms of occupational fraud
34 Perpetrators Report to the Nations
FIG. 26 How does the perpetrator’s tenure relate to occupational fraud?

9% Less than 1 year $40,000

44% 1–5 years $100,000

23% 6–10 years $173,000

24% More than $241,000

10 years

PERCENT OF CASES MEDIAN LOSS

Owners/executives
engaged in non-fraud-related
Owners/executives misconduct more often
are more likely to collude
with others
62+41 owners/executives
62%
of cases involved non-
fraud-related misconduct
Collusion schemes tend to be more
costly than single-perpetrator frauds
non-owners/executives
41%
of cases involved non-

���
fraud-related misconduct

bullying or intimidation
was most common, observed in
41% of owner/executive cases

66%
66+45

owners/executives Frauds detected by a third-party

of cases involved auditor or law enforcement:
collusion

non-owners/executives
45%
of cases involved
Owner/executive
1 in 8
Non-owner/executive
1 in 25
collusion

Frauds that are not detected internally tend to be much more costly

Perpetrators Report to the Nations 35

 One possible explanation for the correlation be-
tween tenure and fraud loss might be that employ-
ees who have been with an organization for long
periods of time are often promoted to positions of
greater authority. As seen in Figure 24 on pg. 33,
there is a strong correlation between authority and
fraud loss.
To test this explanation, we separated all fraud
offenders into two groups: those who had been with
their organizations five years or fewer, and those
who had been with their organizations six years or
more. We then compared the median loss for these
two groups across similar levels of authority. Inter-
FIG. 27 How does the perpetrator’s tenure relate to median loss at different levels of authority?
Employee
$100,000
$35,000
Manager
$200,000
$125,000
Owner/executive
MEDIAN LOSS
Perpetrator’s Department
Figure 28 shows the frequency and median loss in
fraud cases based on where the fraudster worked
within the victim organization. This heat map provides
a visual representation of the relative fraud risks posed
by various departments. For example, we can see that
accounting and operations were each responsible for
36 Perpetrators Report to the Nations
estingly, at every level, the more tenured fraudsters
caused significantly larger losses than their less
tenured counterparts. This indicates that the correla-
tion between tenure and fraud loss to some extent
operates independently from the offender’s level of
authority. We believe it is likely that those with longer
tenure at a victim organization tend to have a better
understanding of the organization’s controls and
processes—including gaps or weaknesses in those
processes—which may enable them to do a better
job of committing and concealing fraud. In a sense,
these perpetrators are learning from experience how
to steal from their employers.
6 years or more
5 years or less
$1,000,000
$672,000
14% of the frauds in our study, but the median loss
caused by those in the accounting department (USD
212,000) was significantly larger than the median loss
from operations (USD 88,000). Frauds committed by
those in executive or upper-management roles were
slightly less common, but much costlier.
FIG. 28 What departments pose the greatest risk for occupational fraud?

Executive/upper management
$729,000
11%

$250,000
Information technology
Accounting
Manufacturing
$200,000 and production Warehousing/inventory

Facilities and maintenance

Purchasing
Finance
$150,000

$100,000 Administrative support Sales Operations

Marketing/public relations Other
Human resources

$50,000
Customer service

$0 0% 2% 4% 6% 8% 10% 12% 14% 16%

LESS RISK MORE RISK

Department* Percent of cases Median loss

Accounting 14% $212,000
Operations 14% $88,000
Sales 12% $90,000
Executive/upper management 11% $729,000
Customer service 8% $26,000
Administrative support 8% $91,000
Other 6% $77,000
Finance 6% $156,000
Purchasing 5% $163,000
Facilities and maintenance 3% $175,000
Warehousing/inventory 3% $200,000
Information technology 3% $225,000
Marketing/public relations 2% $80,000
Manufacturing and production 2% $200,000
Human resources 1% $76,000

*Departments with fewer than ten cases were omitted.

Perpetrators Report to the Nations 37

 Schemes Based on Perpetrator’s Department
Overall, 77% of the occupational frauds in our study came from eight departments: accounting, operations,
sales, executive/upper management, customer service, administrative support, finance, and purchasing. Figure
29 shows the relative frequency of various fraud schemes in each of those departments. Boxes are shaded
from light to dark red based on the frequency for each particular scheme, with darker boxes indicating higher
levels of risk. This data should be useful for organizations to assess risk and develop effective anti-fraud
controls in the departments most likely to be occupational fraud hotspots.

FIG. 29 What are the most common occupational fraud schemes in high-risk departments?

Financial statement fraud

Expense reimbursements

Register disbursements
Check and payment
Cash on hand
Cash larceny

Corruption
tampering

Skimming
Noncash

Payroll
Billing

INDUSTRY Cases

Accounting 290 29% 14% 17% 30% 23% 12% 13% 7% 14% 2% 19%

Operations 266 15% 8% 15% 8% 36% 11% 4% 20% 5% 2% 11%

Executive/upper
223 35% 14% 16% 15% 62% 29% 30% 20% 12% 3% 9%
management

Sales 216 10% 12% 12% 6% 34% 13% 6% 25% 2% 5% 14%

Customer service 155 5% 16% 31% 8% 19% 4% 1% 15% 3% 5% 14%

Administrative support 147 33% 7% 21% 14% 26% 22% 8% 19% 13% 3% 14%

Finance 110 17% 15% 21% 16% 37% 13% 16% 15% 6% 2% 10%

Purchasing 94 18% 5% 6% 5% 77% 10% 3% 31% 3% 2% 4%

LESS RISK MORE RISK

38 Perpetrators Report to the Nations

Perpetrator’s Gender FIG. 30 How does the perpetrator’s
gender relate to occupational fraud?
Figure 30 shows that a sizeable majority 69%
of the fraudsters in our study (69%) were
males. Men also caused much larger medi-
an losses (USD 156,000) than females (USD
89,000). This is consistent with our past

PERCENT OF CASES
studies, which have all shown males to be
responsible for between 65% and 70% of
frauds along with a significant disparity in 31%
fraud loss.

Perpetrator’s Gender Based on Region

The gender distribution of occupational
fraudsters varies significantly by region.
As seen in Figure 31, in the United States
men accounted for 58% of all occupational Male Female

frauds, whereas in the Middle East and

North Africa this figure was 92%. MEDIAN LOSS

$89,000

FIG. 31 How does the gender distribution of

perpetrators vary by region?
$156,000
� �
�

Western Europe 23%

Canada 31%
16%
77%
�� �

Eastern Europe and

69% Western/Central Asia
��
�

84%
�

8%
42%
12%
�

58% 92%
Middle East Southern Asia
United States and North Africa 88%
�

27%
24%
��

Asia-Pacific
��

21% 73%
76%
79%
�
�

Latin American Sub-Saharan Africa

and the Caribbean

Male Female
Perpetrators Report to the Nations 39
 Position of Perpetrator FIG. 32 How does gender distribution and median loss vary based on
Based on Gender the perpetrator’s level of authority?
86%
One possible reason that fraud
losses caused by men are larger 73%
than those caused by women
could be related to levels of 58%

PERCENT OF CASES
authority. As shown in Figure 24
on pg. 33, fraudsters with high
42%
levels of authority (e.g., execu-
tives and owners) tend to cause
27%
much larger losses than those
with low authority (e.g., rank- 14%
and-file employees).

Figure 32 shows that the pro-

portion of male fraudsters rises Employee Manager Owner/executive
with the perpetrators’ level of
authority. At the employee level,
only 58% of fraudsters were $50,000 $50,000
male, but that number increased $128,000
$165,000
to 73% for managers and 86%
for owners/executives. Given
MEDIAN LOSS

that there were far more men $295,000

than women in higher levels
of authority in our dataset, we
would expect the median loss
for males to be larger.

But interestingly, even when

we account for authority
level, males still tend to cause
significantly larger losses than Male Female
females in managerial and $1,000,000
owner/executive roles. Male
owners/executives caused a
median loss of USD 1 million,
as opposed to a median loss
of USD 295,000 caused by
female owners/executives.
Among managers there was
also a gender discrepancy in
median loss, although not nearly
as large. At the employee level,
male and female median losses
were equal.

40 Perpetrators Report to the Nations

Perpetrator’s Age FIG. 33 How does the perpetrator’s age relate to occupational fraud?
19% 19%
The age distribution of
occupational fraudsters
15%
is roughly bell-shaped, as 14%

PERCENT OF CASES
seen in Figure 33. Losses,
however, tend to rise with 10%
9%
the age of the fraudster.
The largest median losses 6%
5%
in our study were caused 3%
by fraudsters in the oldest
age ranges (56 and older),
while those who were 30 <26 26–30 31–35 36–40 41–45 46–50 51–55 56–60 >60

or younger caused a much

$23,000
$40,000
smaller amount of damage.
$100,000 $100,000
MEDIAN LOSS

$200,000
$250,000 $237,000

$355,000

$480,000

FIG. 34 How does the perpetrator’s education

Perpetrator’s Education Level level relate to occupational fraud?
Figure 34 shows there is also a correlation between the 47%
fraudster’s education level and the size of the fraud.
Those with a postgraduate degree caused a median
PERCENT OF CASES

loss of USD 230,000 and those with a university degree

caused a median loss of USD 160,000. Both of these fig- 24%
ures were much higher than the median loss of schemes
15% 14%
by fraudsters with a high school degree or less.

This data might indicate that highly educated fraudsters

have superior technical abilities or knowledge that make
High school Some University Postgraduate
them more effective at committing fraud, but it is also graduate or less university degree degree
probably influenced by the fraudster’s position of au-
thority. More highly educated individuals tend to occupy
higher positions within an organization. For example, in
$75,000
our study approximately 68% of those with a university
MEDIAN LOSS

or postgraduate degree were either managers or own-

ers/executives. $130,000
$160,000

$230,000

Perpetrators Report to the Nations 41

 Collusion by Multiple FIG. 35 How does the number of perpetrators in a scheme relate to
occupational fraud?
Perpetrators

���
Approximately half of the cases 52%
in our study involved multiple
of cases
ONE
perpetrators who colluded with PERPETRATOR
one another to commit fraud. As
Figure 35 illustrates, fraud losses
$74,000 Median
loss

rose significantly when more

���
than one fraudster was involved
19%
in a scheme. One likely explana- of cases
TWO
tion for this finding is that many
anti-fraud controls work on the
PERPETRATORS
principles of separation of duties $150,000 Median
loss

and independent checks. When

���
multiple perpetrators conspire in
30%
a fraud scheme, they can circum-
vent the system of independent
of cases
THREE OR MORE
verification that might otherwise PERPETRATORS
detect fraud. $339,000 Median
loss

Perpetrator’s
Criminal Background FIG. 36 Do perpetrators tend to have prior fraud convictions?
The vast majority of occupational
fraudsters have no prior history
of criminal fraud convictions.
Only 4% of the perpetrators in
our 2018 study had previously
been convicted of a fraud-related
offense, which is consistent with
our findings in every study dating
back to 1996. This suggests that
most occupational fraudsters are
first-time offenders. However, ac-
cording to Figure 43 on pg. 49,
between 58% and 69% of occu-
pational fraud cases in our past
studies were never referred to
law enforcement, which indicates Never charged or convicted (89%)
that the actual number of repeat
Charged but not convicted (6%)
offenders is probably higher than
what can be identified through Had prior convictions (4%)
conviction records. Other (1%)

42 Perpetrators Report to the Nations

Perpetrator’s Employment History
Figure 37 shows that 85% of occupational fraud
perpetrators had never been punished or termi-
nated for fraud-related conduct prior to the crimes
in this study. This also tends to indicate that most
occupational fraudsters are first-time offenders,
but as with criminal conviction data discussed
earlier, this data might understate the real number
of repeat offenders. According to Figure 41 on pg.
47, 28% of fraudsters in our study either received
no punishment from their employers, were permit-
ted to resign, or entered into private settlement
agreements (which are typically confidential).
Therefore, the true number of repeat offenders
may be higher than what is indicated by employ-
ment background checks.
FIG. 37 Do perpetrators tend to have prior
employment-related disciplinary actions for fraud?
Never punished or terminated (85%)
Previously terminated (9%)
Previously punished (6%)
Other (1%)
Behavioral Red Flags
Displayed by Perpetrators
Individuals who are engaged in occu-
pational fraud schemes often exhibit
certain behavioral traits or warning
signs associated with their illegal activ-
ity. We presented survey respondents
with a list of 17 common behavioral red
flags and asked them to tell us which,
if any, of these red flags had been
displayed by the perpetrator before the
fraud was discovered.
Figure 38 on pg. 45 shows the fre-
quency of behavioral red flags in our
2018 cases. The six most common
behavioral indicators of occupational
fraud were: (1) living beyond means; (2)
financial difficulties; (3) unusually close
association with a vendor or customer;
(4) excessive control issues or unwill-
ingness to share duties; (5) recent
divorce or family problems; and (6) a
general “wheeler-dealer” attitude in-
volving shrewd or unscrupulous behav-
ior. These six red flags have been the
six most common behavioral indicators
in every report since we began tracking
this data in 2008. (See “The Red Flags
of Fraud” on pg. 44.)
Perpetrators Report to the Nations 43
 THE RED FLAGS OF FRAUD

Understanding and recognizing the behavioral red flags displayed by fraud perpetrators
can help organizations detect fraud and mitigate losses.

IN

85%
OF CASES
fraudsters displayed at least
one behavioral red flag Living beyond
means
AND IN

50%
OF CASES
they exhibited
multiple red flags
Financial
difficulties

Unusually close
association with
These vendor/customer 2018
behavioral Control issues, 2016
red flags unwillingness
to share duties 2014
have been the most common in
every one of our studies dating 2012
Divorce/
back to 2008, with a remarkably family problems
consistent distribution 2010
2008
“Wheeler-dealer”
attitude

0% 10% 20% 30% 40%

Red flags varied by Red flags varied by

OWNER/
EXECUTIVE PERPETRATOR’S POSITION EMPLOYEE PERPETRATOR’S GENDER

Unusually close association with

24% vendor/customer 16% 24% Financial difficulties 39%
Control issues, unwillingness to
21% share duties 8% 11% Divorce/family problems 20%

22% “Wheeler-dealer” attitude 9% 2% Instability in life circumstances 6%

Irritability, suspiciousness, or Unusually close association with
18% defensiveness 10% 24% vendor/customer 11%

23% Financial difficulties 35% 16% “Wheeler-dealer” attitude 6%

Excessive pressure from within
4% Complained about inadequate pay 11% 8% the organization 3%
44 Perpetrators Report to the Nations
FIG. 38 How often do perpetrators exhibit behavioral red flags?
Living beyond means
41%
Financial difficulties
29%

Unusually close association with vendor/customer

20%
No behavioral red flags
15%

Control issues, unwillingness to share duties

15%
Divorce/family problems
14%

“Wheeler-dealer” attitude
13%
Irritability, suspiciousness, or defensiveness
12%
Addiction problems
10%
Complained about inadequate pay
9%
Excessive pressure from within organization
7%
Social isolation
7%
Past legal problems
6%

Refusal to take vacations

6%
Past employment-related problems
6%

Complained about lack of authority

5%

Excessive family/peer pressure for success

4%

Other
4%
Instability in life circumstances
3%

45
 Non-Fraud-Related
Misconduct by Perpetrators
We presented survey respondents with a list of com-
mon non-fraud workplace violations and asked them
to identify any that the fraudster had been engaged
in prior to or during the time of the fraud. As Figure
39 shows, 45% of fraud offenders had committed
some form of non-fraud workplace violation, which
could potentially indicate a link between occupational
fraud and other forms of workplace misconduct. The
most common non-fraud violation was bullying or
intimidation, which was observed in 21% of all cases.
FIG. 39 Do fraud perpetrators also
engage in non-fraud-related misconduct?
Yes 45% No 55%
Bullying or intimidation (21%)
Excessive absenteeism (14%)
Excessive tardiness (10%)
Excessive Internet browsing (7%)
Sexual harassment (4%)
Visiting inappropriate websites (4%)
Other (4%)
46 Perpetrators Report to the Nations
Human Resources-Related Red Flags
In some circumstances, negative events surrounding
a person’s conditions of employment (such as poor
performance evaluations, loss of pay or benefits, fear
of job loss, etc.) can cause financial stress or resent-
ment toward the employer, which might play a role
in the decision to commit fraud. We refer to these
events as “human resources-related red flags.” As
Figure 40 shows, 39% of fraudsters had experienced
some form of HR-related red flags prior to or during
the time of their frauds. The most common of these
were negative performance evaluations (14% of cas-
es) and fear of job loss (13%).
FIG. 40 Do fraud perpetrators experience negative
HR-related issues prior to or during their frauds?
Yes 39% No 61%
Poor performance evaluations (14%)
Fear of job loss (13%)
Actual job loss (5%)
Cut in benefits (4%)
Other (4%)
Cut in pay (3%)
Demotion (3%)
Involuntary cut in hours (3%)
CASE RESULTS
How do organizations react after a fraud has been
discovered?
We asked our respondents about what happened after the fraud was deter-
mined to have occurred. This data is valuable for developing expectations
about the remedies that are available to organizations, as well as evaluating
the common punitive actions taken against fraud perpetrators. The common
theme in this data is that while it is often worthwhile to pursue remedial ac-
tion against perpetrators, victims will usually not be made whole.

Internal Action FIG. 41 How do victim organizations punish fraud perpetrators?

Taken Against Termination
Perpetrator 65%
Survey respondents pro-
Settlement agreement
vided information about
how perpetrators were 12%
internally punished or
dealt with. Not surprisingly, Perpetrator was no longer with organization
termination was the most 11%
common disciplinary ac-
tion taken in occupational Permitted or required resignation
fraud cases (65%). It is 10%
noteworthy that over one-
third of perpetrators were Probation or suspension
not terminated as a direct
8%
result of committing fraud.
In some cases the victim No punishment
organization imposed
6%
lighter punishments such
as permitting the offender
Other
to resign (10% of cases)
or placing him or her on 4%
probation (8% of cases),
while in 6% of cases the
fraudster received no
punishment at all.

47
 From the perspective FIG. 42 Does the perpetrator’s position affect the punishment for fraud?
of ethics and fair-
ness, there might be Termination
no reason to treat a 44%
high-level fraud perpe- 67%
trator more leniently 72%
than an entry-level
Settlement agreement
employee. However,
18%
our data shows that
12%
punishment is substan- 10%
tially dependent on the
perpetrator’s position Perpetrator was no longer with organization
at the organization. 15%
While employees and 12%
mid-level managers 10%
are more likely than
Permitted or required resignation
not to be terminated
16%
(72% and 67%, respec- 11%
tively), fewer than half 8%
of owners/executives
were terminated (44%). Probation or suspension
Generally, the higher up 7%
the perpetrators were 8%
8%
at the organization, the
more likely they were to No punishment
receive lighter punish-
12%
ments (e.g., permitted or 5%
required resignation) or 3%
no punishment at all.
Owner/executive Manager Employee

Criminal Prosecutions and Civil Suits

After a fraud has been discovered and investigated,
the case might proceed to prosecution, civil litiga-
tion, both, or neither. There are many factors that can
affect this result, such as the amount of the financial
loss, the strength of evidence, and prosecutorial
discretion. Figure 43 shows the percent of cases
that were referred to law enforcement or resulted in
a civil suit being filed for each of our studies dating
back to 2008. This chart illustrates that the rate of
criminal referrals has gradually decreased over that
time, from 69% in 2008 to 58% in 2018. In contrast,
the rate at which civil suits are filed has stayed
consistent, ranging from 22% to 24% within the same
timeframe.

48 Case Results Report to the Nations

FIG. 43 How often is litigation pursued against occupational Results of Criminal or Civil Litigation
fraud perpetrators? We also asked respondents about the
results of any litigation pursued; this
69%
data is shown in Figures 44 and 45. On
65%
64% the criminal side, most cases that were
61%
59% referred to law enforcement ended in a
58%
plea agreement or a conviction at trial
(73% combined). If a case referred to law
enforcement did not end in a conviction,
it was most likely because law enforce-
Referred to law enforcement ment declined to prosecute (18%). The
results suggest that once law enforce-
ment decides that it will proceed with
prosecution, it has an overwhelming
24% chance of securing a conviction; only 1%
22% 23% 22% 23% 23%
of defendants obtained an acquittal.

In addition, more than half of judg-

ments in civil suits were favorable to
Civil suit filed victims, with an additional 27% of cases
being settled. Perpetrators obtained a
favorable judgment in only 15% of civil
cases that went to trial.
2008 2010 2012 2014 2016 2018

FIG. 44 What were the results of criminal referrals? FIG. 45 What were the results of civil suits?

53%
53%

27%

20%
18%
15%

7%
5%
1%
Pleaded Convicted Declined Other Acquitted Judgment Settled Judgment Other
guilty/no at trial to prosecute for victim for perpetrator
contest

Case Results Report to the Nations 49

 Reasons for Not FIG. 46 Why do organizations decide not to refer cases to law enforcement?
Referring Cases to
Fear of bad publicity
Law Enforcement
38%
We know that the rate
of victim organizations Internal discipline sufficient
reporting occupational 33%
fraud to law enforce-
ment has decreased in Too costly
recent years (see Figure 24%
43 on pg. 49). There
Private settlement
are many reasons why
21%
organizations might
decline to refer cases Lack of evidence
for prosecution. In our 12%
study, the top cause
cited was fear of bad Other
publicity (38%), followed 12%
by internal discipline be-
Civil suit
ing sufficient (33%) and
4%
costliness (24%).
Perpetrator disappeared
2%

WHEN VICTIM ORGANIZATIONS ARE FINED

In addition to the direct cost of the fraud, some organizations receive monetary fines from
authorities for having inadequate controls or allowing the fraud to occur.

the median fine was

$100,000
��� �� � 20%
OF FINES
Financial statement fraud schemes

�� �
were the most likely to result in a fine
31% $1,000,000+
to the victim organization

���
OF FINES

34%
14%
OF FINES
OF FINES
$100,000–$999,999
17% 11% 8%
Financial
Corruption
Asset
$10,000–$99,999 statement fraud misappropriation

<$10,000

50 Case Results Report to the Nations

RECOVERING FRAUD LOSSES

After a fraud has been detected, the victim might try to recover its losses from the fraudster or
other sources. Our data shows that victims are rarely made whole.

53%
Recovered
NOTHING

32%
15% MaDe a Partial
Recovery
Recovered
ALL LOSSES

LOST LOST LOST LOST

��� ��� ��� ���

<$10,000 $10,000–$100,000 $100,001–$1,000,000 $1,000,000+
The more victims lose,
the less likely they are 30% 16% 13% 8%
to make a FULL RECOVERY RECOVER
ALL LOSSES
RECOVER
ALL LOSSES
RECOVER
ALL LOSSES
RECOVER
ALL LOSSES

Case Results Report to the Nations 51

 METHODOLOGY
Who contributed to our survey?
The 2018 Report to the Nations is based on
the results of the 2017 Global Fraud Survey, an
online survey opened to 41,573 Certified Fraud
Examiners (CFEs) from July 2017 to October
2017. As part of the survey, respondents were
asked to provide a narrative description of the
single largest fraud case they had investigated
since January 2016. Additionally, after com-
pleting the survey the first time, respondents
were provided the option to submit information
about a second case that they investigated.
Cases submitted were required to
meet the following four criteria:
1. The case must have involved occupa-
tional fraud (defined as fraud committed
by a person against the organization for
which he or she works).
2. The investigation must have occurred
between January 2016 and the time of
survey participation.
3. The investigation must have been com-
plete at the time of survey participation.
4. The respondent must have been
reasonably sure the perpetrator(s) was
(were) identified.
52 Methodology Report to the Nations
Respondents were then presented
with 76 questions to answer regard-
ing the particular details of the
fraud case, including information
about the perpetrator, the victim
organization, and the methods of
fraud employed, as well as fraud
trends in general. (Respondents
were not asked to identify the per-
petrator or the victim.) We received
7,232 total responses to the survey,
2,690 of which were usable for
purposes of this report. The data
contained herein is based solely on
the information provided in these
2,690 survey responses.
Analysis Methodology
In calculating the percentages
discussed throughout this re-
port, we used the total number of
complete and relevant responses
for the question(s) being analyzed.
Specifically, we excluded any blank
responses or instances where the
participant indicated that he or
she did not know the answer to a
question. Consequently, the total
number of cases included in each
analysis varies.
In addition, several survey ques-
tions allowed participants to select
more than one answer. Therefore,
the sum of percentages in many fig-
ures throughout the report exceeds
100%. The sum of percentages in
other figures might not be exactly
100% (i.e., it might be 99% or 101%)
due to rounding of individual cate-
gory data.
Unless otherwise indicated, all loss
amounts discussed throughout the
report are calculated using median
loss rather than mean, or average,
loss. Average losses were skewed by
a limited number of very high-dollar
frauds. Using median loss provides a
more conservative—and we believe
more accurate—picture of the typical
impact of occupational fraud schemes.
Additionally, we excluded median loss
calculations for categories for which
there were fewer than ten responses.

Because the direct losses caused by

financial statement frauds are typically
spread among numerous stakehold-
ers, obtaining an accurate estimate for
this amount is extremely difficult. Con-
sequently, for schemes involving finan-
cial statement fraud, we asked survey
participants to provide the gross
amount of the financial statement mis-
statement (over- or under-statement)
involved in the scheme. All losses
reported for financial statement frauds
throughout this report are based on
those reported amounts.

Methodology Report to the Nations 53

 Survey Participants
To provide context for the survey responses and to understand who investigates cases of occupational fraud,
we asked respondents to provide certain information about their professional experience and qualifications.

Primary Occupation FIG. 47 What was the primary occupation of survey participants?
As noted in Figure 47, Fraud examiner/investigator
37% of survey respon- 37%
dents indicated that their
primary occupation is as Internal auditor
a fraud examiner/inves- 22%
tigator, followed by 22%
who indicated they are Accounting/finance professional
internal auditors. 9%

Law enforcement
7%

Compliance and ethics professional

5%

Risk and controls professional

4%

External/independent auditor
4%

Consultant
4%

Other
3%

Corporate security and loss prevention

3%

Attorney
1%

Private investigator
1%

Bank examiner
1%

IT/computer forensics specialist

1%

Educator
<1%

54 Methodology Report to the Nations

 ���
Nature of Fraud Examination Role FIG. 48 What was the professional role
More than half of the CFEs who participated of the survey participants?
in our study work in-house, conducting fraud Other
2%
examinations on behalf of a single company
or agency. Twenty-seven percent work for a
Law
professional services firm that conducts fraud enforcement
18%
examinations for client organizations, while 18%
work in law enforcement and conduct fraud ex-
aminations under the authority of their agency.
In-house
examiner
Experience 53%

The CFEs who participated in our study had a Professional

services firm
median 11 years of experience in the fraud ex- 27%

amination field, with over 30% having more than

15 years of experience.

���
Respondents also provided information on the
total number of fraud cases they worked on
FIG. 49 How much fraud examination
in the prior two years. As shown in Figure 50,
experience did survey participants have?
one-quarter investigated more than 20 cas-
es, while 41% investigated five or fewer cases
during that time.
More than
20 years 5 years
19% or fewer
22%

16–20 years
13%

FIG. 50 How many fraud cases have survey 6–10 years

28%
participants investigated in the past two years? 11–15 years
18%

More than 20 cases (25%)

16–20 cases (7%)

11–15 cases (7%)

6–10 cases (20%)

5 or fewer cases (41%)

Methodology Report to the Nations 55

 REGIONAL FOCUS

ASIA-PACIFIC

FIG. 51 What are the most common occupational FIG. 52 How is occupational fraud initially
fraud schemes in the Asia-Pacific region? detected in the Asia-Pacific region?

Corruption Tip
51% 47%
Noncash Internal audit
25% 16%

Expense reimbursements Management review

17% 10%

Billing External audit

14% 8%

Financial statement fraud Other

4%
13%
By accident
Cash on hand 4%
13%
Document examination
Check and payment tampering 3%
8%
Account reconciliation
Cash larceny 3%
8%
Surveillance/monitoring
Skimming 2%
7%
Notification by law enforcement
Payroll 1%
4%
IT controls
Register disbursements 1%
3%
Confession
<1%

56 Asia-Pacific Report to the Nations

 FIG. 53 What anti-fraud controls are the most common in FIG. 55 Cases by country in the
the Asia-Pacific region? Asia-Pacific region

Control Percent of cases Country Number of cases

External audit of financial statements 93% Australia 38
Code of conduct 87% Cambodia 2
Internal audit department 80% China 49
Management certification of financial statements 79% East Timor 1
Hotline 74% Hong Kong 10
External audit of internal controls over financial reporting 73% Indonesia 29
Management review 71% Japan 4
Independent audit committee 69% Macau 1
Anti-fraud policy 60% Malaysia 14
Fraud training for employees 59% Myanmar (Burma) 1
Fraud training for managers/executives 57% New Zealand 8
Employee support programs 49% Papua New Guinea 1
Dedicated fraud department, function, or team 42% Philippines 25
Formal fraud risk assessments 37% Singapore 17
Surprise audits 34% South Korea 6
Proactive data monitoring/analysis 32% Taiwan 6
Job rotation/mandatory vacation 16% Thailand 3
Rewards for whistleblowers 11% Vietnam 5
Total cases: 220

FIG. 54 How does the perpetrator’s level of authority

relate to occupational fraud in the Asia-Pacific region?
41% MEDIAN LOSS:
30% usd 236,000
PERCENT OF CASES

26%

���
11%
OF ALL CASES

220
Employee Manager Owner/executive
CASES
$58,000

$323,000
MEDIAN LOSS

$1,000,000

Asia-Pacific Report to the Nations 57

 REGIONAL FOCUS

CANADA

FIG. 56 What are the most common occupational FIG. 57 How is occupational fraud initially
fraud schemes in Canada? detected in Canada?

Corruption Tip
40% 32%
Billing Internal audit
20% 21%

Noncash Management review

18% 15%

Financial statement fraud Other

14% 7%

Skimming Surveillance/monitoring
13% 6%

Cash on hand External audit

13% 5%

Expense reimbursements Account reconciliation

5%
11%
Document examination
Check and payment tampering 4%
10%
By accident
Payroll 4%
6%
IT controls
Register disbursements 1%
3%
Cash larceny
3%

58 Canada Report to the Nations

 FIG. 58 What anti-fraud controls are the most common in
Canada? MEDIAN LOSS:
Code of conduct
Control

External audit of financial statements

Percent of cases
80%
72%
usd 200,000

��
Internal audit department 71%
Employee support programs 71%
Management review 68% 4%
Management certification of financial statements 67% OF ALL CASES

82
Independent audit committee 61%
Hotline 57%
External audit of internal controls over financial reporting 54%
Fraud training for managers/executives 51% CASES
Fraud training for employees 51%
Anti-fraud policy 44%
Proactive data monitoring/analysis 38%
Formal fraud risk assessments 35%
Dedicated fraud department, function, or team 33%
Surprise audits 28%
Job rotation/mandatory vacation 15%
Rewards for whistleblowers 10%

FIG. 59 How does the perpetrator’s level of authority

relate to occupational fraud in Canada?
47%
PERCENT OF CASES

27%
23%

Employee Manager Owner/executive

$156,000
$205,000
MEDIAN LOSS

$600,000

Canada Report to the Nations 59

 REGIONAL FOCUS

EASTERN EUROPE
AND WESTERN/
CENTRAL ASIA

FIG. 60 What are the most common occupational FIG. 61 How is occupational fraud initially
fraud schemes in Eastern Europe and Western/ detected in Eastern Europe and Western/
Central Asia? Central Asia?
Corruption Tip
60% 40%
Noncash Internal audit
30% 20%

Billing Management review

15% 16%

Expense reimbursements By accident

11% 7%

Cash larceny Other

10% 6%

Account reconciliation
Financial statement fraud 3%
10%
Surveillance/monitoring
Cash on hand 2%
9%
IT controls
Check and payment tampering 2%
5%
Notification by law enforcement
Skimming 1%
4%
External audit
Register disbursements 1%
4%
Document examination
Payroll 1%
2%

60 Eastern Europe and Western/Central Asia Report to the Nations

 FIG. 62 What anti-fraud controls are the most common in FIG. 64 Cases by country in Eastern
Eastern Europe and Western/Central Asia? Europe and Western/Central Asia
Control Percent of cases Country Number of cases
External audit of financial statements 95% Bulgaria 3
Internal audit department 91% Czech Republic 3
Code of conduct 83% Georgia 1
Management certification of financial statements 79% Hungary 1
Management review 76% Kazakhstan 4
Hotline 75% Kosovo 2
External audit of internal controls over financial reporting 75% Latvia 2
Independent audit committee 73% Lithuania 1
Anti-fraud policy 66% Macedonia 2
Fraud training for employees 58% Montenegro 1
Dedicated fraud department, function, or team 57% Poland 5
Fraud training for managers/executives 56% Romania 11
Formal fraud risk assessments 46% Russia 15
Surprise audits 40% Serbia 9
Proactive data monitoring/analysis 36% Slovakia 4
Employee support programs 27% Slovenia 4
Job rotation/mandatory vacation 17% Tajikistan 1
Rewards for whistleblowers 5% Turkey 13
Ukraine 3
Uzbekistan 1
FIG. 63 How does the perpetrator’s level of authority Total cases: 86
relate to occupational fraud in Eastern Europe and
Western/Central Asia?
39%
MEDIAN LOSS:
usd 150,000
33%
PERCENT OF CASES

28%

��
4%
OF ALL CASES
Employee Manager Owner/executive

$28,000 86
CASES
$155,000
MEDIAN LOSS

$3,700,000 Eastern Europe and Western/Central Asia Report to the Nations 61

 REGIONAL FOCUS

LATIN
AMERICA AND
THE CARIBBEAN

FIG. 65 What are the most common occupational FIG. 66 How is occupational fraud initially
fraud schemes in Latin America and the Caribbean? detected in Latin America and the Caribbean?
Corruption Tip
51% 49%
Noncash Internal audit
22% 14%

Cash on hand Management review

17% 10%

Financial statement fraud Surveillance/monitoring

14% 5%

Skimming Other
12% 5%

Cash larceny External audit

11% 5%

Billing Account reconciliation

11% 5%

Payroll By accident
9% 4%

Check and payment tampering Document examination

8% 3%

Register disbursements Confession

3% 2%

Expense reimbursements IT controls

1% 1%

62 Latin America and the Caribbean Report to the Nations

 FIG. 67 What anti-fraud controls are the most common in FIG. 69 Cases by country in Latin
Latin America and the Caribbean? America and the Caribbean
Control Percent of cases Country Number of cases
Internal audit department 89% Antigua and Barbuda 1
External audit of financial statements 86% Argentina 8
Code of conduct 81% Bahamas 3
Management certification of financial statements 73% Belize 1
Management review 71% Brazil 22
External audit of internal controls over financial reporting 70% Chile 8
Hotline 68% Colombia 10
Independent audit committee 61% Costa Rica 1
Employee support programs 51% Curaçao 2
Anti-fraud policy 50% Grenada 1
Fraud training for employees 50% Haiti 1
Fraud training for managers/executives 48% Honduras 1
Dedicated fraud department, function, or team 44% Jamaica 6
Formal fraud risk assessments 40% Mexico 29
Surprise audits 35% Nicaragua 3
Proactive data monitoring/analysis 32% Peru 5
Job rotation/mandatory vacation 26% Saint Kitts and Nevis 1
Rewards for whistleblowers 6% Trinidad and Tobago 7
Total cases: 110

FIG. 68 How does the perpetrator’s level of authority

relate to occupational fraud in Latin America and the
Caribbean? MEDIAN LOSS:
40% 40%

usd 193,000

��
PERCENT OF CASES

19% 5%
OF ALL CASES

110
CASES
Employee Manager Owner/executive

$100,000
$150,000
MEDIAN LOSS

$900,000

Latin America and the Caribbean Report to the Nations 63

 REGIONAL FOCUS

MIDDLE EAST
AND NORTH
AFRICA

FIG. 70 What are the most common occupational FIG. 71 How is occupational fraud initially
fraud schemes in the Middle East and North Africa? detected in the Middle East and North Africa?
Corruption Tip
49% 38%
Cash on hand Internal audit
23% 20%
Noncash Management review
19% 16%
Cash larceny Other
15% 9%
Billing Account reconciliation
15% 5%
Skimming Surveillance/monitoring
13% 4%
Expense reimbursements
By accident
9% 2%
Check and payment tampering Document examination
8% 2%
Payroll
4% Notification by law enforcement
2%
Financial statement fraud
4% External audit
2%
Register disbursements
2%

64 Middle East and North Africa Report to the Nations

 FIG. 72 What anti-fraud controls are the most common in FIG. 74 Cases by country in the Middle
the Middle East and North Africa? East and North Africa

Control Percent of cases Country Number of cases

External audit of financial statements 93% Algeria 1
Internal audit department 85% Bahrain 2
Management certification of financial statements 81% Cyprus 5
Code of conduct 78% Egypt 8
External audit of internal controls over financial reporting 69% Iraq 1
Management review 68% Israel 4
Independent audit committee 67% Jordan 10
Hotline 59% Kuwait 5
Surprise audits 59% Lebanon 2
Anti-fraud policy 54% Oman 4
Fraud training for managers/executives 47% Qatar 8
Fraud training for employees 47% Saudi Arabia 16
Dedicated fraud department, function, or team 44% Syria 1
Formal fraud risk assessments 40% United Arab Emirates 34
Proactive data monitoring/analysis 40% Total cases: 101
Employee support programs 33%
Job rotation/mandatory vacation 23%
Rewards for whistleblowers 9%

MEDIAN LOSS:
usd 200,000
FIG. 73 How does the perpetrator’s level of authority
relate to occupational fraud in the Middle East and North
Africa?
41%

��
33% 5%
PERCENT OF CASES

OF ALL CASES

101
23%

CASES

Employee Manager Owner/executive

$105,000
$175,000
MEDIAN LOSS

$1,250,000

Middle East and North Africa Report to the Nations 65

 REGIONAL FOCUS

SOUTHERN
ASIA

FIG. 75 What are the most common occupational FIG. 76 How is occupational fraud initially
fraud schemes in Southern Asia? detected in Southern Asia?

Corruption Tip
62% 53%
Noncash Internal audit
20% 13%

Billing Management review

13% 10%

Expense reimbursements Surveillance/monitoring

13% 4%

Skimming Other
12% 3%

Financial statement fraud External audit

10% 3%

Cash on hand By accident

9% 3%

Cash larceny Account reconciliation

8% 3%

Check and payment tampering Notification by law enforcement

7% 2%

Payroll Document examination

3% 2%

Register disbursements Confession

1% 2%
IT controls
1%

66 Southern Asia Report to the Nations

 FIG. 77 What anti-fraud controls are the most common in FIG. 79 Cases by country in Southern Asia
Southern Asia?
Country Number of cases
Control Percent of cases Afghanistan 6
External audit of financial statements 90% Bangladesh 3
Internal audit department 88% India 72
Code of conduct 88% Maldives 2
Management certification of financial statements 85% Pakistan 13
External audit of internal controls over financial reporting 77% Total cases: 96
Independent audit committee 76%
Management review 76%
Hotline 63%
Anti-fraud policy 58%
MEDIAN LOSS:
usd 100,000
Fraud training for employees 56%
Surprise audits 53%
Fraud training for managers/executives 53%
Dedicated fraud department, function, or team 49%
Employee support programs 43%

��
Formal fraud risk assessments 42%
Proactive data monitoring/analysis
Job rotation/mandatory vacation
35%
25%
5%
Rewards for whistleblowers 9%
OF ALL CASES

96
FIG. 78 How does the perpetrator’s level of authority
relate to occupational fraud in Southern Asia?
CASES
46%
PERCENT OF CASES

31%

19%

Employee Manager Owner/executive

$50,000

$100,000
MEDIAN LOSS

$350,000

Southern Asia Report to the Nations 67

 REGIONAL FOCUS

SUB-SAHARAN
AFRICA

FIG. 80 What are the most common occupational FIG. 81 How is occupational fraud initially
fraud schemes in Sub-Saharan Africa? detected in Sub-Saharan Africa?
Corruption Tip
49% 40%
Cash on hand Internal audit
21% 19%

Noncash Management review

18% 12%

Billing Account reconciliation

17% 7%

Check and payment tampering By accident

15% 6%

Cash larceny Other

14% 4%

Expense reimbursements Document examination

4%
12%
External audit
Skimming 2%
10%
Surveillance/monitoring
Financial statement fraud 2%
9%
Notification by law enforcement
Payroll 1%
6%
IT controls
Register disbursements 1%
2%
Confession
1%

68 Sub-Saharan Africa Report to the Nations

 FIG. 82 What anti-fraud controls are the most common in FIG. 84 Cases by country in Sub-Saharan
Sub-Saharan Africa? Africa
Control Percent of cases
Country Number of cases
External audit of financial statements 90%
Angola 3
Code of conduct 89%
Botswana 1
Internal audit department 87%
Cameroon 1
Management certification of financial statements 81%
Central African Republic 1
Independent audit committee 73%
Chad 3
External audit of internal controls over financial reporting 72%
Congo, Democratic Republic of the 3
Hotline 70%
Congo, Republic of the 1
Management review 69%
Cote d’Ivoire 5
Anti-fraud policy 60%
Equatorial Guinea 1
Fraud training for employees 55%
Gambia 1
Fraud training for managers/executives 52%
Ghana 8
Employee support programs 50%
Guinea 1
Formal fraud risk assessments 46%
Kenya 34
Surprise audits 46%
Liberia 8
Dedicated fraud department, function, or team 43%
Madagascar 2
Proactive data monitoring/analysis 40%
Malawi 3
Job rotation/mandatory vacation 25%
Mali 4
Rewards for whistleblowers 20%
Mauritania 1
Mauritius 2
FIG. 83 How does the perpetrator’s level of authority Mozambique 1
Namibia 4
relate to occupational fraud in Sub-Saharan Africa?
Nigeria 55
48%
Rwanda 1
Senegal 1
Somalia 2
36%
PERCENT OF CASES

South Africa 87
Sudan 1
Swaziland 1
Tanzania 5
Uganda 11
14%
Zambia 5
Zimbabwe 10
Total cases: 267

Employee Manager Owner/executive

MEDIAN LOSS:
usd 90,000
$55,000 $73,000

��
MEDIAN LOSS

13%
OF ALL CASES

267
CASES

$2,716,000
Sub-Saharan Africa Report to the Nations 69
 REGIONAL FOCUS

UNITED
STATES

FIG. 85 What are the most common occupational FIG. 86 How is occupational fraud initially
fraud schemes in the United States? detected in the United States?

Corruption Tip
30% 37%
Billing Management review
26% 14%

Noncash Internal audit

21% 13%

Expense reimbursements By accident

17% 9%

Cash on hand Other

15% 7%

Check and payment tampering Account reconciliation

15% 5%
Skimming Document examination
14% 5%
Cash larceny External audit
11% 3%
Payroll Notification by law enforcement
10% 3%
Financial statement fraud Surveillance/monitoring
9% 3%
Register disbursements Confession
3% 1%
IT controls
1%

70 United States Report to the Nations

 FIG. 87 What anti-fraud controls are the most common in
the United States? MEDIAN LOSS:
Code of conduct
Control

External audit of financial statements

Percent of cases
73%
69%
usd 108,000
Employee support programs 62%

��
Management certification of financial statements 61%
Internal audit department 60% 48%
External audit of internal controls over financial reporting 60% OF ALL CASES

1,000
Management review 59%
Hotline 56%
Fraud training for employees 50%
Fraud training for managers/executives 49% CASES
Independent audit committee 49%
Anti-fraud policy 47%
Formal fraud risk assessments 37%
Proactive data monitoring/analysis 36%
Dedicated fraud department, function, or team 35%
Surprise audits 31%
Job rotation/mandatory vacation 15%
Rewards for whistleblowers 12%

FIG. 88 How does the perpetrator’s level of authority

relate to occupational fraud in the United States?
48%
PERCENT OF CASES

31%

18%

Employee Manager Owner/executive

$50,000

$150,000
MEDIAN LOSS

$637,000

United States Report to the Nations 71

 REGIONAL FOCUS

WESTERN
EUROPE

FIG. 89 What are the most common occupational FIG. 90 How is occupational fraud initially
fraud schemes in Western Europe? detected in Western Europe?
Corruption Tip
36% 46%
Billing Management review
28% 11%

Noncash Internal audit

17% 9%

Other
Cash on hand 6%
15%
Account reconciliation
Expense reimbursements 5%
13%
By accident
Cash larceny 5%
8%
Document examination
Check and payment tampering 4%
8%
External audit
4%
Financial statement fraud
8% Surveillance/monitoring
4%
Skimming
5% Notification by law enforcement
2%
Payroll
4% IT controls
2%
Register disbursements
1% Confession
1%

72 Western Europe Report to the Nations

 FIG. 91 What anti-fraud controls are the most common in FIG. 93 Cases by country in Western
Western Europe? Europe
Control Percent of cases Country Number of cases
Code of conduct 93% Austria 4
Management certification of financial statements 88% Belgium 7
External audit of financial statements 88% Denmark 2
External audit of internal controls over financial reporting 85% Finland 2
Management review 83% France 4
Internal audit department 80% Germany 16
Independent audit committee 78% Greece 22
Hotline 76% Iceland 1
Anti-fraud policy 65% Ireland 2
Fraud training for managers/executives 63% Italy 8
Fraud training for employees 59% Netherlands 10
Formal fraud risk assessments 53% Norway 2
Dedicated fraud department, function, or team 49% Portugal 1
Employee support programs 48% Spain 4
Surprise audits 41% Switzerland 11
Proactive data monitoring/analysis 38% United Kingdom 34
Job rotation/mandatory vacation 22%
Total cases: 130
Rewards for whistleblowers 10%

FIG. 92 How does the perpetrator’s level of authority

relate to occupational fraud in Western Europe? MEDIAN LOSS:
41%

34%
usd 200,000
PERCENT OF CASES

��
6%
18% OF ALL CASES

130
CASES
Employee Manager Owner/executive

$90,000
MEDIAN LOSS

$235,000

$500,000

Western Europe Report to the Nations 73

 INDEX OF FIGURES
Age of Perpetrator
How does the perpetrator’s age relate to occupational fraud? 41
Anti-Fraud Controls
How do internal control weaknesses vary by scheme type? 32
How does the presence of anti-fraud controls relate to median loss? 28
How does the presence of anti-fraud
controls relate to the duration of fraud? 29
What anti-fraud controls are most common? 27
Based on region 57–73
What are the primary internal control weaknesses
that contribute to occupational fraud? 31
Behavioral Red Flags of Perpetrator
Do fraud perpetrators also engage in non-fraud-related misconduct? 46
Do fraud perpetrators experience negative
HR-related issues prior to or during their frauds? 46
How often do perpetrators exhibit behavioral red flags? 45
Spotlight: The red flags of fraud 44
Case Results
Does the perpetrator’s position affect the punishment for fraud? 48
How do victim organizations punish fraud perpetrators? 47
How often is litigation pursued against
occupational fraud perpetrators? 49
Spotlight: Recovering fraud losses 51
What were the results of civil suits? 49
What were the results of criminal referrals? 49
Spotlight: When victim organizations are fined 50
Why do organizations decide not to refer cases to law enforcement? 50
Concealment of Fraud Schemes
Spotlight: Concealing fraud 14–15
74 Index of Figures Report to the Nations
Criminal and Employment
Background of Perpetrator
Do perpetrators tend to have prior employment-
related disciplinary actions for fraud? 43
Do perpetrators tend to have prior fraud convictions? 42
Was a background check run on the perpetrator prior to hiring? 30
What types of background checks were
run on the perpetrator prior to hiring? 30
Demographics of Survey Participants
How many fraud cases have survey participants
investigated in the past two years? 55
How much fraud examination experience did survey participants have? 55
What was the primary occupation of survey participants? 54
What was the professional role of the survey participants? 55
Department of Perpetrator
What are the most common occupational
fraud schemes in high-risk departments? 38
What departments pose the greatest risk for occupational fraud? 37
Detection Method
How does detection method relate to fraud duration and loss? 18
How is occupational fraud initially detected? 17
Based on region 56–72
Who reports occupational fraud? 17
Spotlight: Hotlines and reporting mechanisms 19
Distribution of Losses
How much does an occupational fraud cost the victim organization? 9
Education Level of Perpetrator
How does the perpetrator’s education
level relate to occupational fraud? 41
Gender of Perpetrator
How does gender distribution and median loss
vary based on the perpetrator’s level of authority? 40
How does the gender distribution of perpetrators vary by region? 39
How does the perpetrator’s gender relate to occupational fraud? 39
Geographical Region of
Victim Organization
Countries with reported cases and median loss for each region 7
How does the gender distribution of perpetrators vary by region? 39
Regional focus (most common schemes, detection, anti-fraud
controls, perpetrator’s level of authority, and cases by country) 56–73
Asia-Pacific 56–57
Canada 58–59
Eastern Europe and Western/Central Asia 60–61
Latin America and the Caribbean 62–63
Middle East and North Africa 64–65
Southern Asia 66–67
Sub-Saharan Africa 68–69
United States 70–71
Western Europe 72–73
Industry of Victim Organization
How does occupational fraud affect
organizations in different industries? 24
What are the most common occupational
fraud schemes in various industries? 25
Number of Perpetrators
How does the number of perpetrators in a
scheme relate to occupational fraud? 42
Position of Perpetrator
How does gender distribution and median loss
vary based on the perpetrator’s level of authority? 40
How does the perpetrator’s level of
authority relate to occupational fraud? 33
Based on region 57–73
How does the perpetrator’s level of
authority relate to scheme duration? 34
How does the perpetrator’s tenure relate
to median loss at different levels of authority? 36
Spotlight: Fraud committed by owners and executives 34–35
Scheme Duration
How does detection method relate to fraud duration and loss? 18
How does the duration of a fraud relate to median loss? 14
How does the perpetrator’s level of authority relate to scheme duration? 34
How does the presence of anti-fraud
controls relate to the duration of fraud? 29
How long do different occupational fraud schemes last? 15
Scheme Type
How do internal control weaknesses vary by scheme type? 32
How is occupational fraud committed? 10
How long do different occupational fraud schemes last? 15
How often do fraudsters commit more than
one type of occupational fraud? 12
Occupational Fraud and Abuse Classification System (the Fraud Tree) 11
Spotlight: Corruption 13
What are the most common occupational
fraud schemes in high-risk departments? 38
What are the most common occupational
fraud schemes in various industries? 25
What are the most common occupational
fraud schemes based on region? 56–72
What asset misappropriation schemes present the greatest risk? 12
Size of Victim Organization
How does an organization’s size relate to its occupational fraud risk? 21
Spotlight: Fraud in small businesses 22–23
Tenure of Perpetrator
How does the perpetrator’s tenure relate to
median loss at different levels of authority? 36
How does the perpetrator’s tenure relate to occupational fraud? 35
Type of Victim Organization
What levels of government are victimized? 20
What types of organizations are victimized? 20
Index of Figures Report to the Nations 75
 FRAUD PREVENTION
CHECKLIST
The most cost-effective way to limit fraud losses is to prevent fraud from occurring. This checklist is designed
to help organizations test the effectiveness of their fraud prevention measures. Additional guidance, resourc-
es, and tools for managing organizational fraud risk can be found at ACFE.com/fraudrisktools.
1. Is ongoing anti-fraud training provided to all
employees of the organization?
❑❑ Do employees understand what constitutes
fraud?
❑❑ Have the costs of fraud to the company and
everyone in it — including lost profits, adverse
publicity, potential job loss, and decreased
morale and productivity — been made clear
to employees?
❑❑ Do employees know where to seek advice
when faced with uncertain ethical decisions,
and do they believe that they can speak
freely?
❑❑ Has a policy of zero-tolerance for fraud been
communicated to employees through words
and actions?
2. Is an effective fraud reporting mechanism in
place?
❑❑ Have employees been taught how to com-
municate concerns about known or potential
wrongdoing?
❑❑ Is there a reporting channel, such as a
third-party hotline, available to employees?
❑❑ Do employees trust that they can report sus-
picious activity anonymously and/or confiden-
tially (where legally permissible) and without
fear of reprisal?
❑❑ Has it been made clear to employees that
reports of suspicious activity will be promptly
and thoroughly evaluated?
❑❑ Do reporting policies and mechanisms extend to
vendors, customers, and other outside parties?
76 Fraud Prevention Checklist Report to the Nations
3. To increase employees’ perception of detec-
tion, are the following proactive measures
taken and publicized to employees?
❑❑ Is possible fraudulent conduct aggressively
sought out, rather than dealt with passively?
❑❑ Does the organization send the message
that it actively seeks out fraudulent conduct
through fraud assessment questioning by
auditors?
❑❑ Are surprise fraud audits performed in
addition to regularly scheduled audits?
❑❑ Is continuous monitoring software used to
detect fraud and, if so, has the use of such
software been made known throughout the
organization?
4. Is the management climate/tone at the top one
of honesty and integrity?
❑❑ Are employees surveyed to determine the
extent to which they believe management
acts with honesty and integrity?
❑❑ Are performance goals realistic?
❑❑ Have fraud prevention goals been incorpo-
rated into the performance measures that are
used to evaluate managers and to determine
performance-related compensation?
❑❑ Has the organization established, implement-
ed, and tested a process for oversight of
fraud risks by the board of directors or others
charged with governance (e.g., the audit
committee)?
5. Are fraud risk assessments performed to pro-
actively identify and mitigate the company’s
vulnerabilities to internal and external fraud?
6. Are strong anti-fraud controls in place and
operating effectively, including the following?
❑❑ Proper separation of duties
❑❑ Use of authorizations
❑❑ Physical safeguards
❑❑ Job rotations
❑❑ Mandatory vacations
9. Are employee support programs in place to
assist employees struggling with addiction,
mental/emotional health, family, or financial
problems?
10. Is an open-door policy in place that allows
employees to speak freely about pressures,
providing management the opportunity to
alleviate such pressures before they become
acute?
11. Are regular, anonymous surveys conducted to
assess employee morale?

7. Does the internal audit department, if one

exists, have adequate resources and authority
to operate effectively and without undue influ-
ence from senior management?

8. Does the hiring policy include the following

(where permitted by law)?
❑❑ Past employment verification
❑❑ Criminal and civil background checks
❑❑ Credit checks
❑❑ Drug screening
❑❑ Education verification
❑❑ References checks

Fraud Prevention Checklist Report to the Nations 77

 GLOSSARY OF
TERMINOLOGY
Asset misappropriation: A scheme in which an employee
steals or misuses the employing organization’s resourc-
es (e.g., theft of company cash, false billing schemes, or
inflated expense reports)
Billing scheme: A fraudulent disbursement scheme in which
a person causes his or her employer to issue a payment by
submitting invoices for fictitious goods or services, inflated
invoices, or invoices for personal purchases (e.g., employee
creates a shell company and bills employer for services not
actually rendered; employee purchases personal items and
submits an invoice to employer for payment)
Cash larceny: A scheme in which an incoming payment is
stolen from an organization after it has been recorded on
the organization’s books and records (e.g., employee steals
cash and checks from daily receipts before they can be
deposited in the bank)
Cash-on-hand misappropriations: A scheme in which the
perpetrator misappropriates cash kept on hand at the victim
organization’s premises (e.g., employee steals cash from a
company vault)
Check or payment tampering scheme8: A fraudulent
disbursement scheme in which a person steals his or her
employer’s funds by intercepting, forging, or altering a
check or electronic payment drawn on one of the organiza-
tion’s bank accounts (e.g., employee steals blank company
checks and makes them out to himself or herself or an
accomplice; employee re-routes an outgoing electronic
payment to a vendor to be deposited into his or her own
bank account)
Corruption: A scheme in which an employee misuses his or
her influence in a business transaction in a way that violates
his or her duty to the employer in order to gain a direct or
indirect benefit (e.g., schemes involving bribery or conflicts
of interest)
Employee support programs: Programs that provide
support and assistance to employees dealing with personal
issues or challenges, such as counseling services for drug,
family, or financial problems
Expense reimbursements scheme: A fraudulent disburse-
ment scheme in which an employee makes a claim for reim-
bursement of fictitious or inflated business expenses (e.g.,
employee files fraudulent expense report, claiming personal
travel, nonexistent meals)
78 Glossary of Terminology Report to the Nations
Financial statement fraud: A scheme in which an employee
intentionally causes a misstatement or omission of material
information in the organization’s financial reports (e.g., re-
cording fictitious revenues, understating reported expens-
es, or artificially inflating reported assets)
Hotline: A mechanism to report fraud or other violations,
whether managed internally or by an external party
Management review: The process of management review-
ing organizational controls, processes, accounts, or transac-
tions for adherence to company policies and expectations
Noncash misappropriations: Any scheme in which an
employee steals or misuses noncash assets of the victim
organization (e.g., employee steals inventory from a ware-
house or storeroom; employee steals or misuses confiden-
tial customer information)
Occupational fraud: The use of one’s occupation for
personal enrichment through the deliberate misuse or
misapplication of the employing organization’s resources or
assets
Payroll scheme: A fraudulent disbursement scheme in
which an employee causes his or her employer to issue
a payment by making false claims for compensation (e.g.,
employee claims overtime for hours not worked; employee
adds ghost employees to the payroll)
Primary perpetrator: The person who worked for the victim
organization and who was reasonably confirmed as the
primary culprit in the case
Register disbursements scheme: A fraudulent disburse-
ment scheme in which an employee makes false entries on
a cash register to conceal the fraudulent removal of cash
(e.g., employee fraudulently voids a sale on his or her cash
register and steals the cash)
Skimming: A scheme in which an incoming payment is
stolen from an organization before it is recorded on the
organization’s books and records (e.g., employee accepts
payment from a customer but does not record the sale and
instead pockets the money)
8
In previous reports, this category was referred to simply as check tam-
pering. However, to better reflect the increasing shift toward electronic
payment methods, we have changed the category title to check and
payment tampering.
ABOUT THE ACFE
Founded in 1988 by Dr. Joseph T. Wells, CFE, CPA, the Association of Certified Fraud Examiners (ACFE) is the
world’s largest anti-fraud organization and premier provider of anti-fraud training and education. Together with
nearly 85,000 members in more than 180 countries, the ACFE is reducing business fraud worldwide and pro-
viding the training and resources needed to fight fraud more effectively. The ACFE provides educational tools
and practical solutions for anti-fraud professionals through events, education, publications, networking, and
educational tools for colleges and universities.

Certified Fraud Examiners

The ACFE offers its members the opportunity for professional certification with the Certified
Fraud Examiner (CFE) credential. The CFE is preferred by businesses and government entities
around the world, and indicates expertise in fraud prevention and detection. CFEs are anti-fraud
experts who have demonstrated knowledge in four critical areas: Financial Transactions and
Fraud Schemes, Law, Investigation, and Fraud Prevention and Deterrence.

Membership
Members of the ACFE include accountants, internal auditors, fraud investigators, law enforcement officers,
lawyers, business leaders, risk/compliance professionals, and educators, all of whom have access to expert
training, educational tools, and resources. Whether their career is focused exclusively on preventing and de-
tecting fraudulent activities or they just want to learn more about fraud, the ACFE provides the essential tools
and resources necessary for anti-fraud professionals to accomplish their objectives.

To learn more, visit ACFE.com or call (800) 245-3321 / +1 (512) 478-9000.

Contact
Association of Certified Fraud Examiners
Global Headquarters
716 West Ave | Austin, TX 78701-2727 | USA
Phone: (800) 245-3321 / +1 (512) 478-9000
ACFE.com | info@ACFE.com

TERMS OF USE:
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are available for use free of charge as a public service of the ACFE. You may download, copy and/or distribute the Materials for
personal or business use on the following conditions:

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About the ACFE Report to the Nations 79

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