Fraud Study Shows Benefits of Control Measures

Compliance and audit executives looking to justify all the steps you take to fight fraud, break out your reading glasses! The Association of Certified Fraud Examiners just released a sweeping analysis of corporate fraud that suggests those measures really do pay off. 

The ACFE’s 2020 Report to the Nations studied more than 2,500 cases of fraud from 125 countries, with losses that totaled more than $3.6 billion. Among the study’s findings: 

  • fraudHotlines work. Sixty-four percent of companies victimized by fraud last year had whistleblower hotlines, and those companies experienced smaller losses (median losses of $100,000 versus $198,000) that were caught earlier (12 months versus 18 months).
  • Training leads to more tips. At companies without anti-fraud training, only 37 percent of fraud cases were discovered by a tipster submitting a report. At companies with training, that number jumped to 56 percent.
  • Managers matter. Twenty-eight percent of whistleblowers first reported their allegations to their direct supervisor, and another 11 percent went to a more senior executive. Only 14 percent went to a fraud investigations team, and 12 percent went to internal audit.
  • Calling the cops is on the decline. Forty-six percent of victim companies didn’t refer their cases to law enforcement, believing that internal discipline against the offender was sufficient. 
  • Fraudsters still face consequences. Even when companies don’t involve law enforcement, 80 percent of fraudsters still faced some sort of internal discipline. 

It should come as no surprise that companies that take fraud seriously intercept trouble earlier and see fewer losses; that’s the whole point of an anti-fraud program. The nifty thing about the ACFE report is that it quantifies how much those anti-fraud measures can help the company — which is great information to present as you’re arguing for more investment in anti-fraud efforts. 

Anti-Fraud Changes Over Time

The report also has some statistics about the adoption of anti-fraud controls over time, all of which should feel familiar to corporate compliance and audit professionals. Basically, all the primary tactics you’d use have become more widespread. See Figure 1, below.


The report also found that fraud tipsters are using telephone hotlines less often, in favor of email or web-based submissions. Where hotline calls had recently been as much as 40 percent of all submissions just a few years ago, online submissions are rising swiftly, to the point that online forms, email, and phone account for roughly one-third of all submissions each. 

It’s worth noting that Navex Global reached similar conclusions about online reports in a hotline benchmarking report it published last week. It found that the median number of reports per 100 employees stayed flat overall at 1.4, but the median number for reports arriving via online channels doubled from 1.0 to 2.0. 

Again, this leaves me wondering about the future of internal reporting. As online channels become the dominant means of submission, software will be able to handle those submissions in new ways. I’ve already seen vendors trying to sell “private” whistleblower apps, where the person keeps the app on his or her phone and collects evidence of misconduct over time. Then he or she submits the material to the vendor, which acts as a buffer between reporter and company. 

Will that idea ever go mainstream with compliance officers? It has some appeal, and also many technical questions. I’d love to hear your thoughts at [email protected]

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