HomeMy WebLinkAbout2022-04-05; City Council; ; Employee Fraud and Ethics Hotline Recommendation� CITY COUNCIL� Staff Report
Meeting Date:
To:
From:
Staff Contact:
Subject:
District:
April 5, 2022
Mayor and City Council
Scott Chadwick, City Manager
Robert Threatt, Internal Audit Manager
robert.threatt@carlsbadca.gov, 442-339-2418
Laura Rocha, Deputy City Manager, Administrative Services
laura.rocha@carlsbadca.gov, 442-339-2415
Employee Fraud and Ethics Hotline Recommendation
Citywide
Recommended Action
CA Review CKM
Approve a resolution authorizing implementation of a fraud and ethics hotline exclusively for
city employees.
Executive Summary
The city's Internal Audit Manager has evaluated the benefits of implementing a fraud and ethics
hotline for use by city employees, as called for in the fiscal year 2021-22 internal audit plan.
Implementing a fraud and ethics hotline would provide city employees with a tool for reporting
suspected cases of fraud, waste or abuse of city resources. Doing so will also further strengthen
the city's ability to deter and detect such activities.
The audit plan called for the auditor to research possible hotlines and then report the findings
and make a recommendation to the City Council. Staff are recommending that the City Council
approve the implementation of a fraud and ethics hotline for city employees to include
contracting with an outside vendor for hosted hotline services.
Discussion
California Government Code Section 53087.6, subdivision (a)(2), allows the City Council to
authorize the City Auditor to establish a hotline to receive reports of fraud, waste, or abuse of
city resources. "Fraud, waste, or abuse" means any activity that falls into one of these three
categories:
1.Violates laws or regulations relating to corruption, malfeasance, bribery, theft of
government property, fraudulent claims, fraud, coercion, conversion, malicious
prosecution, misuse of government property, or willful omission to perform a duty
2. Is economically wasteful
3.Involves gross misconduct
April 5, 2022 Item #11 Page 1 of 96
The proposed hotline is not meant to be a substitute for reporting such concerns through the
normal processes and lines of authority. However, management recognizes that employees
may not feel comfortable communicating such information directly to their supervisors.
Additional benefits to implementing a fraud and ethics hotline are outlined in the Association of
Certified Fraud Examiners's 2020 Report to the Nations (Exhibit 2, pages 18-23), a global study
on occupational fraud. The report's findings and statistics support the implementation of
hotlines. The most noteworthy, relative to staff's recommendation, is the degree to which
hotlines increase the likelihood an organization will receive fraud tips. The tips, in turn, aid
organizations in identifying fraud 50% quicker than organizations without hot lines. That further
helps to mitigate losses by identifying fraud sooner.
In weighing the benefits of implementing a hotline, the auditor researched hotlines at three
other public agencies -the City of San Diego, the Port of San Diego and Solano County-and
interviewed personnel responsible for overseeing their use. The first two public agencies
contracted with a third-party vendor, Navex Global, to host their hotlines. The third, Solano
County, used a system that was developed and managed by the county's employees.
Following this research, city staff requested and received quotes from three vendors who offer
hosted hotline services. The services offered by each vendor were essentially identical. Each
included a turnkey hotline system that established no fewer than two intake points where city
employees could submit reports of suspected fraud, waste, or abuse. Once reports are
submitted by employees using either an online form or a toll-free phone line, the systems each
send an email notification to city staff indicating that a report has been received. Staff could
then use a link in the notifications to retrieve the report and any attachments. The hotlines
permit a two-way communication between the reporting party and the managers responsible
for investigating the reports.
Upon implementation of the hotline, the city would have a small cross-functional group of
managers, overseen by the Internal Audit Manager, perform an initial review of any reports
received and to oversee any investigations deemed necessary. Depending on the details of the
reports, investigations may be assigned to any of the city's different subject matter experts
(e.g., Human Resources, the Police Department, or the Finance Department, to name a few). If
it's found that the city has another reporting mechanism designed to address the primary issue
identified in the report, the report will be directed to that program or tool. An example of such
a tool would be the Police Department's online crime reporting tool.
If malfeasance is found as a result of any investigation, the matter will be immediately referred
to the appropriate department or office within the city for the appropriate next steps.
Depending on the circumstances and the nature of the malfeasance, this could include the City
Manager's Office, the City Attorney's Office, Police Department, or Human Resources.
In keeping with the city's commitment to transparency, the Internal Audit Manager will prepare
a summary statistical report of hotline activity on a recurring basis and will present the results
to the City Council. If there is a substantiated case of fraud, waste or abuse, the City Council will
receive a report of findings and actions taken.
The Internal Audit Manager and the managers who review the reports will comply with the
confidentiality requirements of California Government Code Section 53087.6 (Exhibit 3). The
April 5, 2022 Item #11 Page 2 of 96
departments investigating allegations shall also take steps to comply with these confidentiality
requirements.
Staff recommend the city leverage the expertise of a vendor, Navex Global, to develop and
implement the fraud and ethics hotline. The city will oversee and manage the review and
investigation, when necessitated, of all reports received. For the costs outlined in the Fiscal
Analysis section below, the city is receiving the following value:
• Ethics-Point hotline, an industry leading governance, risk and compliance hotline system
• A five-week implementation timeline, with Navex Global responsible for most of the
work
• A co-branded hotline webpage for the intake of reports
• A toll-free, staffed phone line available for the intake of reports 24 hours a day, seven
days a week and every day of the year
• A well-defined reporting workflow that generates automated notifications and on-
demand reports
• Marketing materials provided to the city to help build hotline awareness
• Training for the city staff responsible for managing the hotline
While the option exists to develop a similar hotline internally with city resources, there is value
delivered by Navex Global that the city is not able to duplicate or do so at a reasonable cost.
That includes industry leading governance, risk and compliance training resources, and a fully
staffed call center. In addition to the value-added features of the vendor hosted hotline,
avoiding the additional administrative burden of the hotline implementation is factored into
staff's recommendation.
Options
1. Authorize the city to implement a fraud and ethics hotline to serve as a tool for
employees to report suspected cases of fraud, waste, or abuse of city resources.
Pros
• Statistics show that entities with fraud hotlines are able to deter fraud and to
mitigate its effects by identifying fraud quicker than entities with no such tool
• A fraud hotline will strengthen the city's internal controls by contributing to its
ability to detect fraud through the analysis of information reported by
employees
• Such a hotline provides employees with a direct line of communication to report
what they believe to be cases of fraud, waste and abuse of city resources
• Implementing a hotline demonstrates that the city's executive leadership takes
its responsibility to safeguard taxpayer funded city resources and assets seriously
Cons
• There is an added administrative burden with managing such a tool and
investigating reports submitted by employees
2. Do not authorize staff to implement a fraud and ethics hotline at this time.
Pros
• By not implementing the proposed hotline, city staff avoid an increase in
administrative duties
April 5, 2022 Item #11 Page 3 of 96
Cons
• The city will miss an opportunity to strengthen its internal controls and increase
transparency
Staff recommend Option 1.
Fiscal Analysis
If the hotline is approved, staff plan to engage a third-party vendor that provides hotline
hosting services. Those services would require an initial three-year agreement that would cost
$5,300 in the first year and $4,300 in each of the second and third years, not to exceed a total
of $13,900 for the three-year period. The amount of this agreement is within the City
Manager's procurement authority under the city's Purchasing Ordinance (Carlsbad Municipal
Code Chapter 3.28). The necessary funds for the first year have been requested in the fiscal
year 2022-23 Administrative Services Administration Division budget and funds for subsequent
years will be included in the respective future budget requests.
Next Steps
If the City Council concurs with and approves staff's recommendation, the city will develop
detailed procedures, identify the necessary training and enter into a short-term agreement with
Navex Global to provide their Ethics-Point hotline services.
Environmental Evaluation
This action does not constitute a "project" within the meaning of the California Environmental
Quality Act under California Public Resources Code Section 21065 in that it has no potential to
cause either a direct physical change in the environment or a reasonably foreseeable indirect
physical change in the environment.
Public Notification
This item was noticed in keeping with the state's Ralph M. Brown Act and available for public
viewing and review at least 72 hours before the scheduled meeting date.
Exhibits
1. City Council resolution
2. The Association of Certified Fraud Examiners' 2020 Report to the Nations
3. California Government Code Section 53087.6
April 5, 2022 Item #11 Page 4 of 96
EXHIBIT 1
RESOLUTION NO. 2022-086
A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF CARLSBAD, CALIFORNIA,
APPROVING THE IMPLEMENTATION OF A FRAUD AND ETHICS HOTLINE TO PROVIDE
EMPLOYEES WITH A TOOL FOR REPORTING SUSPECTED CASES OF FRAUD, WASTE, AND
ABUSE OF CITY RESOURCES
WHEREAS, California Government Code Section 53087.6, subdivision (a){2), allows the City
Council to authorize the City Auditor to establish a hotline to receive reports of fraud, waste, or abuse
of city resources; and
WHEREAS, "fraud, waste, or abuse" means any activity that (1) violates laws or regulations
relating to corruption, malfeasance, bribery, theft of government property, fraudulent claims, fraud,
coercion, conversion, malicious prosecution, misuse of government property, or willful omission to
perform a duty; (2) is economically wasteful; or (3) involves gross misconduct; and
WHEREAS, the fiscal year 2021-22 Internal Audit Plan calls for the city's Internal Audit
Manager to evaluate the benefits of a dedicated fraud and ethics hotline and to present the findings
and recommendations to the City Council; and
WHEREAS, the primary purpose of the fraud and ethics hotline is to provide city employees with
a tool for reporting suspected cases of fraud, waste, and abuse of city resources directly to
management; and
WHEREAS, city staff recommend that a dedicated fraud and ethics hotline be implemented with
city staff providing recurring reports to the City Council summarizing the number and general nature
of reports received through the hotline and more detailed reports when there are substantiated cases
of fraud, waste, or abuse, with all reports complying with the confidentiality requirements of California
Government Code Section 53087.6; and
WHEREAS, the hotline is not intended to replace the standard chain of command reporting,
however the hotline is available to city employees who feel they need an alternate reporting
mechanism for communicating issues of fraud, waste or abuse of city resources to the city's
management; and
April 5, 2022 Item #11 Page 5 of 96
NOW, THEREFORE, BE IT RESOLVED by the City Council of the City of Carlsbad, California, as
follows:
1.That the above recitations are true and correct.
2.That the implementation of a dedicated fraud and ethics hotline is approved.
PASSED, APPROVED AND ADOPTED at a Regular Meeting of the City Council ofthe City of
Carlsbad on the 5th day of April 2022, by the following vote, to wit:
AYES:
NAYS:
ABSENT:
Hall, Blackburn, Bhat-Patel, Acosta, Norby.
None.
None.
ftv' FAVIOLA MEDINA, City Clerk Services Manager
(SEAL)
April 5, 2022 Item #11 Page 6 of 96
Exhibit 2
REPORT TO THE NATIONS®
2020 GLOBAL STUDY ON OCCUPATIONAL FRAUD AND ABUSE
I I J /
_ ___, /
I
I
~ACFE
Asso1.:.n1on 01 Cemficd Fraud Examiners
FOREWORD
The 2020 Report to the Nations-the ACFE's 11th study on the costs
and effects of occupational fraud-represents the latest in a series of
reports dating back to the first edition published in 1996. Collectively,
these studies represent countless hours of work by our staff spent
gathering, analyzing, and interpreting the data from thousands of cas-
es of fraud committed against organizations of all types and sizes. We
have invested so much time and effort into this research because we
recognize two simple truths: (1) occupational fraud imposes tremen-
dous costs upon businesses and government agencies throughout
the world; and (2) in order to deal with such a problem, we must first
understand it. In the 24 years since it was first published, the Report
to the Nations has arguably contributed more to our understanding of
occupational fraud than any other source of information.
The first Report to the Nation was launched in 1996 by ACFE Founder,
Dr. Joseph T. Wells, CFE, CPA, because he recognized that there was
a glaring lack of information about occupational fraud. More impor-
tantly, he also recognized that the ACFE was uniquely situated to
address this problem because we were sitting on what was probably
the greatest source of fraud information in the world-the collective
knowledge and experiences of the Certified Fraud Examiners who
make up our association.
Over the years, the ACFE has received a great deal of praise and
credit for publishing the Report to the Nations, which is the most
widely quoted source of occupational fraud data in the world. But
none of this would be possible without the work of thousands of CF Es
who have taken the time to share with us very detailed information
about the cases they have investigated and the lessons they have
learned. I am reminded that this is why we have an association like
the ACFE in the first place-so that our members can share infor-
mation, contribute to the common body of knowledge, and learn
from one another. The ACFE is proud to be the conduit helping to
broadcast and transmit that information, but make no mistake: It is
our members who are the source of every piece of data contained in
these pages. This study is a tribute to the important work they do and
their willingness to give back to the profession.
On behalf of the ACFE and all of the CFEs who have contributed to
this study, I am proud to present the 2020 edition of the Report to
the Notions.
Bruce Dorris, J.D., CFE, CPA
President and CEO, Association of Certified Fraud Examiners
Item #11 Page 8 of 96
CONTENTS
Foreword 2 Collusion by Multiple Perpetrators 48
Perpetrator's Criminal Background 48
Key Findings 4
Perpetrator's Employment History 49
Introduction 6 Behavioral Red Flags Displayed by Perpetrators 49
Spotlight: The Global Cost of Fraud 8 Non-Fraud-Related Misconduct by Perpetrators 51
How Is Occupational Fraud Committed? 10 Human Resources-Related Red Flags 51
Categories of Occupational Fraud 10 Spotlight: Behavioral Red Flags of Fraud 52
Duration of Fraud Schemes 14 Case Results 54
Velocity of Fraud Schemes 16 Internal Action Taken Against Perpetrator 54
Spotlight: How Occupational Fraud Is Concealed 17 Spotlight: Response to Fraud 55
Detection 18 Reasons for Not Referring Cases to Law Enforcement 56
Initial Detection of Occupational Fraud 18 Recovering Fraud Losses 56
Median Loss and Duration by Detection Method 20 Fines Against Victim Organizations 57
Spotlight: Hotline and Reporting Mechanism Effectiveness 21 Methodology 58
Reporting Mechanisms 22 Analysis Methodology 59
Parties to Whom Whistleblowers Report 23 Survey Participants 60
Victim Organizations 24 Regional Focus 62
Type of Organization 24 Asia-Pacific 62
Size of Organization 25 Eastern Europe and Western/Central Asia 64
Industry of Organization 26 Latin America and the Caribbean 66
Spotlight: Fraud in Nonprofits 28 Middle East and North Africa 68
Anti-Fraud Controls at Victim Organizations 31 Southern Asia 70
Spotlight: Internal Control Weaknesses that Sub-Saharan Africa 72
Contribute to Occupational Fraud 36 United States and Canada 74
Perpetrators 38 Western Europe 76
Perpetrator's Position 38 Statistical Appendix 78
Perpetrator's Tenure 39
Perpetrator's Department 40 Index of Figures 82
Perpetrator's Gender 43 Fraud Prevention Checklist 84
Perpetrator's Age 45
Glossary of Terminology 86
Perpetrator's Education Level 46
Spotlight: Profile of a Fraudster 47 About the ACFE 87
April 5, 2022 It em #11 Page 9 of 96
Contents Report to the Nations -
KEY FINDINGS
OUR STUDY
COVERED
Q 2,504 CASES •---; Causing total
losses of more than
O-D---0-0 □~ TYPICAL
□ [] □ FRAUD CASE
r-----------------~
' ' 0 O
la sts
14 MONTHS
before
detection
ca uses a
loss of
$8,300
per month
'---------------------------------------
'
i CORRUPTION WASTHE
: MOST COMMON ~i i-!-. ~ ~ -GLOBAL REGION
: • SCHEME IN EVERY
'. ________ ... -------------------------·~
Organizations w ith
FRAUD AWARENESS TRAINING
for employees were
more likely to gather tips through
FORMAL
REPORTING
MECHANISMS
$3.6 BILLION
CFEs ESTIMATE THAT
ORGANIZATIONS
LOSE 5 % OF REVENUE
TO FRAUD
EACH YEAR
ASSET MISAPPROPRIATION
SCHEMES f~;
most common and least costly
86%
OfCASES
S100,000
median loss
MEDIAN LOSS
PER CASE:
$125 ,000
AVERAGE LOSS
PER CASE:
$1,509,000
FINANCIAL STATEMENT
FRAUD SCHEMES f~;
least common and most costly
10%
OfCASES
$954,000
median loss
Qt l ~ ~ D(o •~~~';;,,•,','.'.2'.'.'.,:'.'° ~
ca me from employees \._)l
______ TELE PH~~,: ~~!~Is~~ ~~d EMAIL,-...:0
whistleblowers in
33o/o
OF CASES
'----------------------------··---------·-----'
4 Kt>y Findings Reporl 10 Ille Nations
ufi' USE OF TARGETED ANTI-FRAUD CONTROLS
HAS INCREASED OVER LAST DECADE
'
HOTLINE t13% A lack of internal controls
CERTAIN FRAUD RISKS
WERE MORE LIKELY IN
SMALL BUSINESSES
THAN IN LARGE
ORGANIZATIONS:
contributed to nearly
ANTI-FRAUD POLICY t13% ' ,-------~-------, ' '
FRAUD TRAINING FOR -~~ EMPLOYEES t11%
FRAUD TRAINING FOR t 9% 1/3 OF FRAUDS MANAGERS/EXECUTIVES
THE PRESENCE OF ANTI-FRAUD CONTROLS
IS ASSOCIATED WITH LOWER FRAUD LOSSES
AND QUICKER DETECTION
~0 v .
' ' ' ' ' ' ' '
FEMALE
$150,000 $85 ,000
Medi;in toss Median toss
Men committed 72%
of all occupational fraud,
and also caused
larger losses than women
c§:&~==o~
'~l; 80% OF FRAUDSTERS I)
Owners/executives
committed only 20% of
occupational fra uds, but they
caused the largest losses
•
OWNER/EXECUTIVE ----------$600,000
MANAGER
• ------------$150,000
EMPLOY££
• --------------$60,000
0
460/o of victim
org anizations decli ned
to refer cases to
law enforcement
because
Bi lling fra ud ______________________ 2X HIGHER
Payroll -----------------------···---2X HIGHER
Ch eck and payment
tampering ----------------------4X HIGHER
MORE THAN HALF of all occupational
frauds came from these four departments:
OPERATIONS 15%
r-----------i) ACCOUNTING 14%
fnlnnITT EXECUTIVE/UPPER ,----------viJ!}7 MANAGEMENT 12%
SALES 11%
,42 01. ~26% OF 70 OF OCCUPATIONAL
OCCUPATIONAL FRAUDSTERS WERE
FRAUDSTERS WERE FACED SOME FORM OF
INTERNAL DISCIPLINE FROM INTERNAL DISCIPLINE
WAS SUFFICIENT
LIVING BEYOND THEIR MEANS EXPERIENCING FINANCIAL
DIFFICULTIES
THE VICTIM ORGANIZATION
Key Findings Repor1 to the Nations 5
-
INTRODUCTION
This study represents the most comprehensive
examination available of the costs, methods,
victims, and perpetrators of occupational fraud.
The Association of Certified Fraud Examiners is
pleased to present the 2020 edition of the Report
to the Nations, our 11th study of the impact occu-
pational fraud has on organizations throughout the
world. Occupational fraud1-fraud committed by
individuals against the organizations. that employ
them-is among the costliest forms of financial crime
in existence. There are more than 3.3 billion people
in the global workforce,2 and nearly all of them have
access to or control over some portion of their em-
ployers' cash or assets. For the ones who decide to
seek illegal gains, their workplace is, in many cases,
the most logical and convenient target. While the vast
majority of those 3.3 billion people will never abuse
the trust placed in them by their employers, the small
percentage who do can cause enormous damage. As
this report illustrates, that damage could amount to
trillions of dollars in losses each year.
This study contains an analysis of 2,504 cases of
occupational fraud that were investigated between
January 2018 and September 2019. This is a tiny
fraction of the number of frauds committed each
year against millions of businesses, government
'Occupational fraud is formally defined as the use of one's occupation
for personal enrichment through the deliberate misuse or misapplication
of the employing organization's resources or assets.
2 United Nations Department of Economic and Social Affairs, World
Economic Situotion and Prospects Monthly Briefing, April 1, 2019.
April 5, 2022
Introduction Report to the Nations
The goal of the Report to the Nations
is to compile detailed information
about occupational fraud cases in
five critical areas:
O The methods by which occupational
fraud is committed
O The means by which occupational frauds
are detected
O The characteristics of the organizations
that are victimized by occupational fraud
O The characteristics of the people who
commit occupational fraud
O The results of the cases after the frauds
have been detected and the perpetrators
identified
organizations, and nonprofits throughout the world.
Yet this study represents the most comprehensive
examination available of the costs, methods, victims,
and perpetrators of occupational fraud. The data
presented here was gathered through our 2019
Global Fraud Survey. Each Certified Fraud Examiner
(CFE) who took part in the survey was presented with
Item #11 Page 12 of 96
a detailed questionnaire consisting of 77 questions The information presented in this study is drawn
about a specific case of fraud they had investigated. from cases that occurred in 23 different industry
These CFEs provided information on the method of categories. These frauds affected large multinational
fraud employed, the loss, the victim organization, the organizations, small nonprofits, and every size and
perpetrator, the means of detection, and the response type of business or government agency in between.
by the victim organization after the fraud had been The fraudsters in these cases ranged from C-suite
detected. We are deeply indebted to the CFEs who executives to entry-level employees. The lesson of
shared their knowledge and experiences to help us this and our previous studies is clear: No organization
prepare this report. is immune from occupational fraud, and these crimes
can originate from anywhere within the organization.
FIG. 1 Reported cases by region
United States and Canada
CASES: 895 (46%)
Sub-Saharan Africa
Western Europe
CASES: 128 (7%)
April 5, 2022
CASES: 301 (15%)
Latin America
and the Caribbean
CASES: 101 (5%)
Middle East
and North Africa
CASES: 127 (7%)
~~. 4 '.
. i
Asia-Pacific
CASES: 198 (10%)
Southern Asia
CASES: 103 (5%)
Eastern Europe and
Western/Central Asia
CASES: 95 (5%)
Item #11 Page 13 of 96
Introduction Report to the Nations -
-
The cases in our study occurred in 125 coun-
tries throughout the world, which also helps
underscore the global nature of the threat
posed by occupational fraud. Figure 1 on page
7 shows the number and percentage of cases
from eight major geographical regions. (Be-
cause data in our study was gathered through
a survey of CFEs, the number of cases in each
region largely reflects the geographical make-
up of ACFE membership. It should not be read
to indicate that fraud is more or less prevalent
in any particular region.)
We present this report with the hope that it will
be of use to anti-fraud practitioners, organiza-
tional leaders, academic researchers, and the
public at large. We have compiled a great deal
of data about the methods, costs, and indica-
tors of occupational fraud, along with valuable
information on how these crimes are detected
and how they might be prevented or mitigat-
ed. The amount of money lost to occupational
fraud each year represents a staggering drain
on the global economy. It directly impacts
organizations' abilities to create jobs, pro-
duce goods and services, and provide public
services. The better we can understand how
and why these crimes occur and how to fight
them, the better we will be at directing the
proceeds of commerce and state action to-
ward the goals for which they were intended,
rather than into the pockets of the fraudsters
who prey on the system. We hope this study
will contribute to the public understanding
of these crimes; advance the common body
of anti-fraud knowledge; and contribute to
improved detection, deterrence, and investiga-
tion of occupational fraud.
April 5, 2022
Introduction Report to the Nations
The Global Cost of Fraud
Fraud is a global problem affecting all organizations
worldwide. Because occupational fraud is frequently
undetected and often never reported, it is difficult to
determine the full scope of global losses. But our data
provides insight into the enormity of this issue.
:--c ~ 2,504 CASES
I
:_ -• V 125 COUNTRIES
Causing total
losses of more than
$3.6 BILLION
AVERAGE LOSS
PER CASE:
$1,509,000
~ LOSS
PER CASE
S1.000.000
S800,000
S600.000
S400.000
S200,000
so
ASIHACIFIC
25TH PERCENTILE
$29,000 75TH PERCENTILE
MED IAN
: $125,000
$605,000
$100,000 $:?00.000 $300,000 $400,000 $:>00.000
THE TYPICAL LOSS VARIES BY REGION
_1:,
EASTERN EUROPE LATIN AMERICA
AND WESTERN/ AND TllE
CENTRAL ASIA CARIBBEAN
21% OF
CASES CAU SED
LOSSES OF
1~:: !f"il
MIDDLE EAST SOUTHERN SUB·SAHARAN
AND ASIA AFRICA
NORTH AFRICA
..
CFEs ES
ORGA
LOSE
TIMATETHAT ---NIZATIONS ---.. -
~~ ~ 5% OF REVENUE
TD FRAUD
EACH YEAR
-•
UNITED STATES
AND CANADA
.. " ,.
iii! :
••
nru·-1:11_[
I
I
WESTERN
EUROPE
.i
PROJECTED
AGAINST 2019 GWP
($90.52 TRILLION),
THAT'S MORE
T HAN
" $4.5 TRILLION
LOST TO FRAUD
GLOBALLY
EACH Y EAR
~ ~ ~ ~ ~ --
SOURCE WWW.IMF ORGIEXTERNAUDATAM/l• :-:;,: k,(>~ DaWEO',::;F:\•: ::,.,/\CV:;.:\'. ::'JWORLD
Introduction Report to the Ni!lions
-
Categories of Occupational Fraud
At the highest level, there are three primary categories of
occupational fraud. Asset misappropriation, which involves
an employee stealing or misusing the employing orga-
nization's resources, occurs in the vast majority of fraud
schemes (86% of cases); however, these schemes also
tend to cause the lowest median loss at USD 100,000 per
case (see Figure 2). In contrast, financial statement fraud
schemes, in which the perpetrator intentionally causes a ma-
terial misstatement or omission in the organization's financial
statements, are the least common (10% of schemes) but
costliest category of occupational fraud. The third category,
corruption-which includes offenses such as bribery, con-
flicts of interest, and extortion-falls in the middle in terms of
both frequency and financial damage. These schemes occur
in 43% of cases and cause a median loss of USD 200,000.
April 5, 2022
How Is Occupational Fraud Committed? Report to the Nations
FIG. 2 How is occupational fraud committed?
86%
V)
Vl
0
--' z
<t
0 w
:i:
43%
10%
Asset Financial
misappropriation Corruption statement fraud
$100,000
$200,000
$954,000
Item #11 Page 16 of 96
FIG . 3 Occupational Fraud and Abuse Classification System (the Fraud Tree)3
Corruption Asset Misappropriation Financial Statement Fraud
I
3 The definitions for many of the categories of fraud schemes in the Froud Tree are found In the Glossary of Terminology on pg. 86.
April 5, 2022 Item #11 Page 17 of 96
How Is Occupational Fraud Committed? Report to the Nations -
-
In one-third of the cases in our study, the fraudster committed more than one of the three primary categories
of occupational fraud. As noted in Figure 4, 26% of fraudsters undertook both asset misappropriation and
corruption schemes, 3% misappropriated assets and committed financial statement fraud, 1% engaged in both
corruption and financial statement fraud, and 5% participated in all three categories.
April 5, 2022
FIG. 4 How often do fraudsters commit more than one type of
occupational fraud?
Asset
misappropriation
Asset misappropriation only
Asset misappropriation and corruption
Corruption only
F:11c111ci;il
st<1tc111c11t fr ilUd
Corruptio11
-------.53%
•• 26% ----------
• 11%
Corruption, asset misappropriation, and financial statement fraud ••• 5%
Asset misappropriation and financial statement fraud •• 3% ------
• 2% Financial statement fraud only
Corruption and financial statement fraud
----------
•• 1%
Item #11
How Is Occupational Fraud Committed? Report to the Nations
Page 18 of 96
Asset Misappropriation Sub-Schemes
Within the broad category of asset misappropriation, fraudsters use several methods to steal funds and other
resources from their employers. Figure 5 is a heat map that shows the frequency and median loss of each category
of asset misappropriation sub-scheme (see Glossary on page 86 for definitions of each of these sub-scheme cate-
gories). Billing schemes are the most common form of asset misappropriation and also cause a high median loss,
making this type of fraud a particularly significant risk. Other high-risk frauds based on the combination of frequen-
cy and impact are check and payment tampering, as well as schemes involving the theft of noncash assets.
FIG. 5 What asset misappropriation schemes present the greatest risk?
$120,000
$110,000
$100,000
$90,000
$80,000
$70,000
$60,000
$50,000
$40,000
$30,000
$20,000
$0
Register disbursements
0
0% 2% 4% 6%
LESS RISK
Category
Billing
Noncash
Expense reimbursements
Skimming
Cash on hand
Check and payment tampering
Payroll
Cash larceny
Register disbursements
April 5, 2022
8% 10% 12% 14%
Number of Cases Percent of All Cases
430 20%
395 18%
310 14%
230 11%
224 10%
206 10%
199 9%
169 8%
55 3%
16% 18% 20%
MORE RI SK
Median Loss
$100,000
$78,000
$33,000
$47,000
$26,000
$110,000
$62,000
$83,000
$20,000
Item #11 Page 19 of 96
How Is Occupational Fraud Committed? Report to the Nations -
-
Duration of Fraud Schemes
Not all fraud can be prevented. Even in the most secure organizations, it is likely that
some type of employee fraud will eventually occur. Consequently, quick detection of
fraud is vital to protecting an organization from potential damage. Our research indi-
cates that the median duration of a fraud-that is, the typical time between when a fraud
begins and when it is detected-is 14 months. Additionally, as Figure 6 indicates, the
longer a fraud remains undetected, the greater the financial losses.
FIG. 6 How does the duration of a fraud relate to median loss?
V)
w
V)
<( u
u.
0
1-z w u a:: w a..
29%
19%
13%
12%
10%
5% 5%
7%
s6 months 7-12 13-18 19-24 25-36 37-48 49-60 >60 months months months months months months months -$50,000
$90,000
$135,000
V) $210,000
V)
0
....J
z $300,000 <(
Cl w $340,000
~ $430,000
$740,000
April 5, 2022 Item #11 Page 20 of 96
How Is Occupational Fraud Committed? Report to the Nations
When designing anti-fraud controls,
assessing fraud risks, and enacting
proactive detection measures, it is
helpful to understand the potential
impact of different types of fraud
schemes. In addition to analyzing
the median loss and frequency of
the categories of occupational fraud
(see Figures 2 and 5 on pages 10
and 13, respectively), we examined
how long cases in each of these
categories tend to last. As noted in
Figure 7, companies tend to catch
noncash schemes the quickest (13
months), while several scheme cat-
egories typically last 2 years before
being uncovered.
April 5, 2022
FIG. 7 How long do different occupational fraud schemes last?
Payroll
24 months
Check and payment tampering
24 months
24 months
Financial statement fraud
24 months
Expense reimbursements
24 months
24 months
Cash larceny
21 months
Corruption
18 months
16 months
Cash on hand
15 months
Noncash
13 months
Item #11 Page 21 of 96
How Is Occupational Fraud Committed? Report lo lhe Nations -
-
Velocity of Fraud Schemes
Recognizing that not all fraud schemes affect com-
panies equally and that organizations must make
decisions in how and where to direct their anti-fraud
efforts, we wanted to know how quickly occupational
frauds tend to cause harm. For each case reported
to us, we divided the loss amount by the number of
months the scheme lasted to determine what we refer
to as the scheme's velocity. The median velocity for all
cases in our study was a loss of USO 8,300 per month.
Analyzing the velocity by scheme type revealed that
certain types of occupational fraud schemes cause
damage much more quickly than others. As Figure 8
shows, financial statement fraud schemes have the
greatest velocity of USO 39,800 per month, followed
by corruption schemes, with a velocity of USO 11,100
per month. Because these schemes tend to result in
larger losses very quickly, organizations might use this
data to prioritize their investments in mechanisms to
prevent and quickly detect these types of fraud. On
the other end of the spectrum, register disbursement
schemes and expense reimbursement schemes tend
to grow more slowly, with a velocity of USO 800 and
USO 1,400 per month, respectively, meaning orga-
nizations typically have more time to uncover these
schemes before losses become significant.
FIG. 8 What is the typical velocity (median loss per month) of different occupational fraud schemes?
Financial statement fraud
$39,800
Corruption
$11 ,100
Noncash
$6,000
Check and payment tampering -$4,600
Billing -$4,200
Cash larceny -$4,000
Skimming -$2,900
Payroll
1111 $2,600
Cash on hand • $1,700
Expense reimbursements
■ $1,400
Register disbursements
I $800
April 5, 2022 Item #11 Page 22 of 96
How Is Occupational Fraud Committed? Report to the Nations
We also found differences in scheme velocity based on how many perpetrators are involved in a fraud and based
on the perpetrator's level of authority. Schemes with three or more perpetrators escalate much more quickly than
those with just one or two perpetrators. Schemes committed by an owner/executive have a velocity over three
times that of schemes committed by an employee or manager, highlighting how those in the highest positions
have the ability to damage the company much more quickly than lower-level personnel.
Median loss Median duration
One perpetrator $90,000 14 months
Two perpetrators $105,000 14 months
Three or more perpetrators $350,000 15 months
Employee $60,000 12 months
Manager $150,000 18 months
Owner/executive $600,000 24 months
How Occupational Fraud Is Concealed
t., j 11 '' ( J '' '1 ''. ·1 • ·: f I '· i. : J; J 1 •
40%
Crec1ted frc1udulent
physiec1 I documents
-
· I, · • ,. c1 1:, '. : ,r, ·., t1· li , 1111 I 1 : 1°, •· · :; : ti,
TOP 4 CONCEALMENT METHODS USED □Y rRAUDSHRS
360/o
Altered physical
documents
27%
Altered electronic
documents or files
Scheme velocity
(loss per month)
$6,400
$7,500
$23,300
$5,000
$8,300
$25,000
26%
Crec1ted fmudulent
electronic
documents or files
(})-
-
I -
12% did not involve any attempts to conceal the fraud
--=
How Is Occupational Fraud Committrd? • ' ', r~ .. ' I,'
Initial Detection of
Occupational Fraud
The foundation to effective detection
of occupational fraud is knowing the
most common methods by which fraud
is discovered. Despite the increasingly
sophisticated fraud detection techniques
available to organizations, tips were the
most common way occupational frauds
were discovered in our study by a wide
margin, as they have been in every one of
our previous reports. As shown in Figure 9,
more than 40% of cases in our study were
uncovered by tips, which is almost three
times as many cases as the next-most-
common detection method. Therefore,
processes to cultivate and thoroughly
evaluate tips should be a priority for fraud
examiners.
Item #11 Page 24 of 96
Tip Sources
Figure 10 breaks down the sources of tips that led to fraud detection. Half of all tips came from employees,
while a substantial number of tips came from outside parties, including customers, vendors, and competitors.
These findings demonstrate that anti-fraud education and the communication of designated reporting mecha-
nisms should target not only internal staff, but external parties as well.
FIG. 9 How is occupational fraud initially detected? FIG. 10 Who reports occupational fraud?
15%
Management review
12%
Employee
Other -6%
By accident
Ill 5%
Account reconciliation Customer -4%
External audit -4%
Anonymou"
Document examination • 3%
Surveillance/monitoring • 3% Vendor
Notified by law enforcement
■ 2% Other
IT controls
■ 2% CornpPtitor
Confession Shareholder /owner
I 1%
April 5, 2022 Item #11 Page 25 of 96
Detection Report to the Nations -
-
Median Loss and Duration by Detection Method
Our data also shows that some fraud detection
methods are more effective than others in the sense
that they correlate with lower fraud losses. Figure 11
shows the relationship between detection method
and the associated fraud scheme duration and loss.
In this chart, the red bars indicate schemes that were
detected by passive methods, meaning the fraud came
to the victim's attention through no effort of their own,
including notification by police, by accident, or confes-
sion. Passively detected schemes tended to last longer
and were associated with the highest median losses
relative to all other detection methods. The blue bars
indicate detection methods that are active, meaning
they involved a process or effort designed (at least in
part) to proactively detect fraud, such as document ex-
amination or surveillance/monitoring. Our data shows
that schemes discovered through one of these active
methods were shorter and had lower median losses
than those detected passively. The purple bars could
potentially be passive or active, including tips and
external audit.
What we can learn from this data is that when fraud
is detected proactively, it tends to be detected more
quickly and thus causes lower losses, while passive
detection results in lengthier schemes and increased
financial harm to the victim. Anti-fraud controls such
as account reconciliation, internal audit departments,
involved management review, and active cultivation of
tips are all tools that can lead to more effective detec-
tion of occupational fraud.
FIG. 11 How does detection method relate to fraud loss and duration?
MEDIAN LOSS MEDIAN DURATION
$900,000 Notified by police 24 months
$225,000 --Confession 17 months
$200,000 By accident 24 months
$150,000 -External audit 24 months
$145,000 -Tip --14months
$101,000 -Document examination 18 months
$100,000 -Management review 17 months
$100,000 -Internal audit 111111111111111 12 months
$81,000 • Account reconciliation -7months
• Passive detection method $80,000 . IT controls -6months
e Polenltnlly active or p;issrve detectron method
e Active detection method $44,000 I Surveillance/monitoring -7 months
April 5, 2022 Item #11 Page 26 of 96
Detection Report to the Nations
Hotline and Reporting
Mechanism Effectiveness
Maintaining a hotline or reporting mechanism
speeds up fraud detection and reduces losses.
Fraud awareness training further improves cultivation
of tips thro ugh reporting mechanisms.
--------· MEDIAN LOSSES WERE NEARLY---------;
~64°(~ DOUBLED AT ORGANIZATIONS
WITHOUT HOTLINES
VICTIM ORGANIZATIONS
had hotlines
Effect of EMPLOYEE FRAUD AWARENESS TRAINING
on hotlines and reporting
Training increases the
likelihood of detection by tip
'AB l.l of cases detected ~ 7Q by tip with training --
Tips are more likely to be
submitted through reporting
mechanisms with training
tips with
: training 56%
A of cases detected by
• tip without training 37%
Org anizations with
hotlines detected fraud
by ti p more often
49%
Of CASES
DETICTED
BY TIP
HOTLINES NO HOTLINES
Small organizations are especially
likely to detect occupational fraud by tip
<100 ()·• ---,
EMPLOYEES •• i
cases
detected
EMPLOYEES ~}'"'
' Organizations with hotlines
detect frauds MORE QUICKLY
than those without hotlines
18 .,11, "
6) 11 ,
Since 2010, the use of hotlines
or reporting mechanisms
has increased
notably 49%
2012 2014 2016 2018 2020
Detc-ction Report to the Nations 11
-
Reporting Mechanisms
In cases where a reporting mechanism was used to
report fraud, we asked respondents to indicate how
the tip came in. In our two previous reports, tele-
phone hotlines were the most common mechanism
whistleblowers used by a substantial margin. As
shown in Figure 12, telephone hotline use declined
substantially in this report, while email and web-
based/online reporting each rose to become nearly
equal to telephone hotlines. The use of mailed
forms has also dropped from 17% to 12% since 2016.
These findings indicate that whistleblowers' pre-
ferred methods of reporting fraud may be shifting,
particularly toward on line and in electronic written
form. Consequently, organizations should consider
maintaining multiple reporting channels to fit the
needs of those who submit tips.
FIG. 12 What formal reporting mechanisms did ~histleblowers use?
Telephone hotline '' ..
Email
Web-based/online form
Mailed letter/form
Other -••,.-· -------tl-1------~em•·.
Fax (11-)._ ______ ,__ ___ --l_lU_
2016 2018 2020
April 5, 2022 Item #11 Page 28 of 96
Detection Report to the Nations
Parties to Whom
Whistleblowers Report
In approximately 33% of cases where a tip was
made, the whistleblowers did not use a formal
reporting mechanism. Instead, they reported
their suspicions directly to supervisors, investi-
gators, or other interested persons. Identifying
how often whistleblowers tend to report fraud to
various parties can help organizations answer
several important questions. Who should be
trained to handle a complaint if they receive one?
How likely are whistleblowers to report outside
of the organization? How should complaints
lodged outside a formal reporting mechanism be
recorded and escalated? Figure 13 indicates that
whistleblowers are most likely to report fraud
to their direct supervisors, yet many will go to
other parties, such as fraud investigation teams,
human resources, or their coworkers. Therefore,
it is important to provide all staff with guidance
on how fraud allegations should be responded to
and escalated.
It is also noteworthy that 7% of reports were
made directly to law enforcement or regulators,
instead of internally, which is something most or-
ganizations would hope to avoid. This illustrates
the importance of training staff on how and why
they should report fraud internally.
28%
Fraud investigation team 14%
12%
April 5, 2022
FIG. 13 To whom did whistleblowers initially report?
Direct supervisor
28%
Other
15%
Fraud investigation team
14%
Internal audit
12%
Executive
11%
Coworker
10%
Law enforcement or regulator -7%
Owner -7%
Board or audit committee -6%
Human resources -6%
In-house counsel
1111 4%
External audit
I 1%
Item #11 Page 29 of 96
Detection Report to the Nations -
-
Type of Organization
As shown in Figure 14, 70% of frauds occurred
in for-profit organizations, with 44% of the victim
organizations being private companies and 26%
being public companies. Private and public or-
ganizations each suffered a median loss of USD
150,000. Nonprofit organizations only reported
9% of fraud cases and suffered the smallest
median loss of USD 75,000; however, many non-
profits have limited financial resources to begin
with, so a loss of this amount can be particularly
devastating to these entities (see "Fraud in Non-
profits" infographic on page 28).
Level of Government Organization
Resources and operations vary at different
levels of government, which can influence how
fraud affects these organizations. To illustrate
this, we analyzed the government organizations
in our study by level. National-level government
entities experienced the greatest number of
frauds (45%) and had the highest median loss
of USD 200,000, which is more than twice as
much as the median loss at state/provincial
government entities (USD 91,000). While local
governments reported the second-highest
number of cases (32%), they suffered a relatively
lower median loss of USD 75,000.
April 5, 2022
Victim Organizations Report lo 1he Nations
11
1111111 -■■-1111111 -■■-1111111 -■■-1111111 ::::
1111111 -■■-1111111 ::::
1111111 -■■-1111111 ::::
1111111 ::::
1111111 -■■-1111111 ::::
1111111 ::::
FIG. 14 What types of organizations are victimized by
occupational fraud?
(/) w
(/)
<t u
u. 0
I-z w u a: w c..
(/)
(/)
0 __,
z <t
0 w
::i;
44%
26%
16%
9%
■ 5% -Private Public Government Nonprofit Other company company
$75,000
$100,000 $100,000
$150,000 $150,000
FIG. 15 What levels of government are victimized
by occupational fraud?
•
National: 45%
1s200.000·1
•
State/provincial: 21%
[$91,00Q·)
• Local:32%
($75,000;
Other. 2%
(N/A")
'Dollar amounts ore median loss. Median loss
calculations for categories with fewer than 10
cases were omitted.
Item #11 Page 30 of 96
Size of Organization
In Figure 16, the size of the victim organizations in our study is shown based on the number of employees. The
cases reported to us were evenly distributed, with about a quarter in each size category. Small businesses (those
with fewer than 100 employees) had the highest median loss of USO 150,000, while large organizations (those
with more than 10,000 employees) had a median loss of USO 140,000. It is important to note, however, that a
small business likely will feel the impact of a loss this size much more than its larger counterparts.
Figure 17 shows the distribution of victim organizations by annual revenue, with median losses ranging from
USO 114,000 in the smallest organizations to USO 150,000 in the largest.
FIG. 16 How does an organization's size relate
to its occupational fraud risk?
en w en < (J
u..
0
I-z w
(J
0: w
Q.
en en
0 ..,
z <
0 w
:I:
26\\\
<100
employees
$150,000
April 5, 2022
27\\\
23%
100-999 1,000-9,999
employees employees
$100,000
$120,000
25\\\
10,000+
employees
$140,000
FIG. 17 How does an organization's gross
annual revenue relate to its occupational fraud risk?
en w en < (J ...
0
I-z w (J
0: w
Q.
"' en
0 ..,
z <
0 w :I:
38'l\
<$50 million
$114,000
26'l\ 24'l\
12\\\
I
$50 mlllion-$500 million-$1 billion• $499 million $999 million
$120,000
$132,000
$150,000
Item #11 Page 31 of 96
Victim Organizations Report to the Nations -
-
Figure 18 shows the frequency of different types of fraud schemes in small businesses (those with fewer than
100 employees) and larger organizations. Billing schemes occurred at almost twice the rate in small businesses
compared to larger organizations, while check and payment tampering was nearly four times more common at
small companies. In contrast, corruption and noncash schemes occurred more frequently in larger organizations.
FIG. 18 How do fraud schemes vary by organization size?
Corruption
Billing
Check and payment tampering
Expense reimbursements
Payroll
Skimming
Noncash
Financial statement fraud
Cash on hand
Cash larceny
Register disbursements
Industry of Organization
17%
15%
13%
38%
47%
30%
22%
20%
■ <100 employees
■ 100+ employees
Participants were asked to identify the industry of the victim organization. The most common industries reported to
us were banking and financial services, government and public administration, and manufacturing. (It is important
to note that this does not necessarily mean that more fraud occurs in these sectors; it might simply indicate that
organizations in these industries employ more CFEs than others.) The mining industry suffered the highest median
loss of USO 475,000, while frauds in the energy sector had the next-highest median loss of USO 275,000.
April 5, 2022 Item #11 Page 32 of 96
Victim Organlzatlons Report to the Nations
FIG. 19 How does occupational fraud affect organizations in different industries?
Agriculture. forestry.
fisl1111cJ ,111c1 IHJ11t111g
Eclucc1tio11
$65,000
lnsurclllCC
$70,000
Ret,111
$85,000
Tr,1nsportc1tion ,1I1cl
w,1rl'110us1ng
April 5, 2022
Arts. entertilinmcnt.
,111cl recret1tion
$90,000
Energy
$275,000
Mc1nufilcturing
\1• ) /,-..,. CS'::,
$ 185 198,QQQ Cases
Services (other)
$150,000
Utilities
',li :J t~"-l .UC.,'::,
$ 20 163,QQQ Cases
Banking c1ncl
fin,rnci,1I services
'N :) ;\\IL Cl':,S
$ 386 100,QQQ Cases
Food service ancl
hospitality
M[D A"l .OSS
$114,000
Mining
$475,000
Co111munict1tio11s
and publisl1i11g
$115,000
Government illlcl
public c1cl111inistratio11
$100,000 ~~~
$254,000
Construction
\1C . >·t.·--J. ( JSS
$ 80 200,QQQ cases
Hcaltll CiHC
Mi-~J /\'J '()'::,':,
$ 149 200,QQQ Cases
Religious. char itilble.
or social SelVICl'S
$76,000
Services (p1ofess1onal) Tecl111oloqy Tclccommu11icat1011s
$150 ,000
Wholesille trilcle
$130,000
$150,000
ivi; ·) J\'J (JSS
$ 67 250,QQQ Cases
Item #11 Page 33 of 96
Victim Organizations Report to the Nations -
Fraud in Nonprofits
Nonprofit organizations can be more susceptible to fraud
due to having fewer resources available to help prevent and
recover from a fraud loss. This sector is particularly vulnerable
because of less oversight and lack of certain internal controls.
Nonprofit schemes Percent of cases
Corruption 41 %
191 Billing 30% ~CASEST Expense reimbursements -23%
Cash on hand • 17% ' .--------------1
' ' ■ ' ' Noncash 16%
6 ' 0 Skimming ■ 15%
MEDIAN LOSS AVERAGE LOSS ■ $75 ,000 $639,000 Check and payment tampering 14%
Cash larceny ■ 12%
C®~ Payroll ■ 12%
Financial statement fraud ■ 11% 9 Reg ister disbu rsements I 3%
Owner/executive
~iitN $250,000
------------------~-----------------1
: I :
6 6
0 35%
of cases
Manager/supervisor
~iitN $95,000
----------, : ' ----------, ' ' : ' 6
0 ~
' r ' ' ' ' ' ' ' 6 9
0 0 ~ ~ ....__.,
23%
of cases
Employee
~ii~AN $21,000
28 Victim Organizations Report lo the Nations
Nonprofit
organizat ions have
FEWER ANTI-FRAUD
CONTROLS in pl ace,
lea ving them
Surprise audits Form al fraud risk
assessments
··· 35% LACK OF INTERNAL CONTROLS
--19% LACK OF MANAGEMENT REVIEW
Management review
OVERRIDE OF EXISTING
INTERNAL CONTROLS
57%
76%
/,'.. '· · ..
ii,_.,· t ' ..
:C--''\"' :. i~ I.
\ ..
~~ I • •' • t;· ..
~~,-~ ~. i
Internal audit
department
■ Nonprofit organizations
. Other_ . organ1zat1ons
CONTROLS
Detection AT NoNPRoF1Ts ------------------
TIP OR INTERNAL MANAGEMENT BY EXAMINATION
COMPLAINT AUDIT REVIEW ACCIDENT OF DOCUMENTS
40% 17% 13% 7% 6%
~ ~ [I]~ rn [fl
Victim Organizations Report to the Nations 19
-
Most Common Schemes by Industry
Identifying the most common fraud schemes within industries can help organizations design controls to guard
against their most significant threats. In Figure 20, we show the most common occupational fraud schemes in
industries with at least 50 reported cases. The risks are shaded from yellow to red, with darker variants represent-
ing higher-risk areas. For example, in the health care industry, corruption represents the highest risk (40% of cases),
followed by billing schemes (33% of cases).
FIG. 20 What are the most common occupational fraud schemes in various industries?
INDUSTRY
A rn-<1 ,J rid fin r c111
"-1 f,I((
Go.\ , 11111t 11t i111d public
(1cl,111n1c.,tr (1l1011
F outl t r. 1U 111(/
110 p1L1l1t1
L ESS RISK
April 5, 2022
Victim Organizations Report to the Nations
Cases
364
189
177
145
89
89
82
82
T7
64
63
62
59
54
52
Cl ~ ixi
11%
-
221l
M
13%
24t,
5%
"C >, C: c:: "' .,
~ .c:
C: ..!!! 0
'7ii .c: V> "' "' u u
10% -
5% 9%
5% 6%
10% 10%
6% 7%
15% 15%
2% 5%
9% 13%
13% 12%
5% 9%
0% 5%
2% 3%
IOI 10%
0% 9%
13% 12%
~ "C
c:: ::, ., Jg
C: E ., c:: ., ~ ., E ::, E >, .D ~ "' E a. "' "C c:: -~ -:;; Cl c:: 0 "' c:: a ., ro .c: 'f V> ·o V> .>< c:: "' ..., a. 2 ., c:: ..., ., E 0 a. "' c:: .c: ~ c:: 0 u !!! u ii: z
10% 10%
4% 111 --
14% 241
9% 2ft
6% -
11% 9%
7% n -13%
3% 231
13% 22W.
6%
11%
15% 11%
15% 12%
.f'
., -
Item #11
2 >, "' <l.
2% -
10%
15%
6%
11%
5%
13%
13%
6%
11%
2%
12%
m
8%
~ c:: .,
E .,
~ ::, .D V> '5 Cl a:; c:: .E 1ii E 'o, <11 3i: a:: V,
2% 10%
0% 7%
2% 8%
6% 10%
1% 9%
• 15%
2% 6%
1% an
4% 13%
0% 191
0% 0%
0% 5%
10% 14%
2%
4%
MORE RISK
Page 36 of 96
Anti-Fraud Controls at
Victim Organizations
Proactive anti-fraud controls play a key
role in an organization's fight against
fraud. While the presence of these
mechanisms alone does not ensure that
all fraud will be prevented, manage-
ment's commitment to and investment
in targeted prevention and detection
measures send a clear message to em-
ployees, vendors, customers, and others
about the organization's anti-fraud
stance.
We asked survey respondents which of
18 common anti-fraud controls the victim
organization had in place at the time of
the fraud. Figure 21 shows that inde-
pendent external audits of the organiza-
tion's financial statements are the most
common of the controls examined in our
study; 83% of the victim organizations
had their financial statements audited
by an outside auditor. While we classify
such audits as an anti-fraud control for
purposes of our study, it is important to
note that this mechanism is not primarily
designed to detect or prevent all frauds.
As noted in Figure 9 on page 19, only 4%
of the frauds in our study were uncov-
ered through an external audit.
Other common anti-fraud controls
include a code of conduct (present in
81% of victim organizations), an internal
audit department (74%), and manage-
ment's certification of the financial
statements (73%).
April 5, 2022
FIG. 21 What anti-fraud controls are most common?
External audit of financial statements
83%
Code of conduct
81%
Internal audit department
74%
Management certification of financial statements
73%
External audit of internal controls over financial reporting
68%
Management review
65%
Hotline
64%
Independent audit committee
62%
Anti-fraud policy
56%
Employee support programs
55%
Fraud training for employees
55%
Fraud training for managers/executives
55%
Dedicated fraud department, function, or team
44%
Formal fraud risk assessments
41%
Surprise audits ____ l_ _______ ___l3~8%
Proactive data monitoring/analysis
38%
Job rotation/mandatory vacation
23%
Rewards for whistleblowers
13%
Item #11 Page 37 of 96
Victim Organizations Report to the Nations -
-
Effectiveness of Anti-Fraud Controls
While implementing controls to prevent and detect
fraud is a necessary part of managing fraud risk, not
all anti-fraud controls are created equally. To help
organizations understand the potential impact of
various controls, we compared the median losses and
median durations of the frauds in our study based
on whether each specific control was present at the
victim organization during the fraud's occurrence.
For every control we examined, organizations that had
the control in place experienced smaller fraud losses
and detected frauds more quickly than organizations
lacking that control. As seen in Figures 22 and 23,
four anti-fraud controls in particular were associated
How has the use of anti-fraud controls
changed over the last decade?
Over thC' l,ist tl'rl yc,1I s of OLJr stLJd rcs, foLJr of the
controls we've ,1n,1ly?ccl l1ilve soc,n il co11sis-
tcI1t dlld l)Otili)IP lllCIP<lS(' in irnple111011t,1tio11
r,1tes. I liese co11trols ,110 i1111oncJ tl10se
most cornrnonly ,1ssoc,c1tcd w rtl1 ,1 robust
,1nt,-f1 ,iuci pr ogr ,1m, w hich incliciltcs tl1<1t
lllCICilSlllCJ llUllli)OIS of OIQillllZiltions
c1rc L1k111g tl10 tl1rcilt of frilud s01 i-
ously ,1ml implcmcntinq I110,1surc·s
specrficillly dcsiqned to l1elp tl1em
rrntrgiltl' tl1ese risks
with a 50% or greater reduction in both fraud losses
and duration: a code of conduct; an internal audit
department; management's certification of financial
statements; and regular management review of in-
ternal controls, processes, accounts, or transactions.
Internal audits and management reviews are both
mechanisms that can be used to actively look for
fraud, so their correlation with reduced fraud losses
and duration stands to reason. In contrast, codes of
conduct and management certifications of financial
statements are less directly tied to fraud detection,
but both mechanisms likely help increase the percep-
tion of detection and form the foundation for a holistic
anti-fraud culture.
2010 2020 l11crcc1se
~ 51 64 13
l-=-
43 56 13
0
~ 44' 55 11'
r--h 46 'c 55"_ 9'j
AAA
April 5, 2022 Item #11 Page 38 of 96
Victim Organizations Report to the Nations
FIG. 22 How does the presence of anti-fraud controls relate to median loss?
$200,000 ■ Median loss without controls
■ Median loss with controls
$150,000
$100,000
$50,000
$0
Control Percent Control Control not Percent
of cases in place in place reduction
Code of conduct 81% $100,000 $205,000 51%
Internal audit department 74% $100,000 $200,000 50%
Management certification of financial statements 73% $100,000 $200,000 50%
External audit of internal controls over financial reporting 68% $100,000 $200,000 50%
Management review 65% $100,000 $200,000 50%
Hotline 64% $100,000 $198,000 49%
External audit of financial statements 83% $110,000 $204,000 46%
Fraud training for employees 55% $100,000 $160,000 38%
Anti-fraud policy 56% $100,000 $150,000 33%
Proactive data monitoring/analysis 38% $100,000 $150,000 33%
Surprise audits 38% $100,000 $150,000 33%
Formal fraud risk assessments 41% $100,000 $150,000 33%
Employee support programs 55% $100,000 $150,000 33%
Fraud training for managers/executives 55% $100,000 $150,000 33%
Independent audit committee 62% $100,000 $150,000 33%
Dedicated fraud department, function, or team 44% $100,000 $145,000 31%
Job rotation/mandatory vacation 23% $100,000 $130,000 23%
Rewards for whistleblowers 13% $120,000 $122,000 2%
April 5, 2022 Item #11 Page 39 of 96 -Victim Organizations Report to the Nations
-
FIG. 23 How does the presence of anti-fraud controls relate to the duration of fraud?
25
~ 20 ... u w ... w 0
~ 15
"' :t ... z 0
:Ii
~ 10
0 w
:Ii
Code of conduct
5
Job rotation/mandatory vacation
Internal audit department
Control
Management certification of financial statements
Management review
External audit of financial statements
Surprise audits
External audit of internal controls over financial reporting
Proactive data monitoring/analysis
Hotline
Formal fraud risk assessments
Anti-fraud policy
Fraud training for employees
Fraud training for managers/executives
Independent audit committee
Dedicated fraud department, function, or team
Rewards for whistleblowers
Employee support programs
April 5, 2022
Victim Organizations Report to the Nations
■ Median duration without controls
■ Median duration with controls
Percent Control Control not Percent
of cases in place in place reduction
81% 12 months 24 months 50%
23% 9 months 18 months 50%
74% 12 months 24 months 50%
73% 12 months 24 months 50%
65% 12 months 24 months 50%
83% 13 months 24 months 46%
38% 11 months 18 months 39%
68% 12 months 19 months 37%
38% 12 months 18 months 33%
64% 12 months 18 months 33%
41% 12 months 18 months 33%
56% 12 months 18 months 33%
55% 12 months 18 months 33%
55% 12 months 18 months 33%
62% 12 months 18 months 33%
44% 12 months 18 months 33%
13% 11 months 16 months 31%
55% 12 months 16 months 25%
Item #11 Page 40 of 96
Anti-Fraud Controls in Small Businesses
Small businesses face different types of fraud risks
than larger organizations (see Figure 18 on page 26),
and they also experience unique challenges in com-
bating occupational fraud. Whether it's due to resource
limitations, a lack of awareness, or a tendency to place
too much trust in their employees, small businesses
implement anti-fraud controls at a much lower rate than
their larger counterparts. The most common anti-fraud
control-external audits of financial statements-was
only in place at 56% of small businesses, and only 48%
of these companies had a code of conduct, compared
to 92% and 91%, respectively, of organizations with
more than 100 employees.
Our data shows that there are clear opportunities for
small businesses to increase their protection against
fraud. Adopting a code of conduct and an anti-fraud
policy, having managers review the work of their sub-
ordinates, and conducting targeted anti-fraud training
for employees and managers are all measures that are
correlated with significant reductions in fraud losses
(see Figure 22 on page 33), yet each was implemented
by fewer than half of the small businesses in our study.
Each of these measures can typically be implemented
without requiring a significant investment of resources
and could help improve the anti-fraud environment of a
small organization.
FIG. 24 How do anti-fraud controls vary by size of victim organization?
External audit of financial statements 56%
Code of conduct 48%
Management certification of financial statements 39%
Management review 35%
External audit of internal controls over financial reporting 33%
Internal audit department 31%
Employee support programs 23%
Independent audit committee 21%
Hotline 20%
Anti-fraud policy 20%
Fraud training for employees 19%
Fraud training for managers/executives 19%
Proactive data monitoring/analysis
-
5%
Surprise audits
Dedicated fraud department, function, or team -11%
Formal fraud risk assessments .. 9%
Job rotation/mandatory vacation -9% 2 % -7
Rewards for whistleblowers • 4% 16%
April 5, 2022
46%
55%
52%
92%
91%
85%
76%
80%
88%
■ <100 employees
■ 100+ employees
65%
76%
79%
67%
67%
67%
Item #11 Page 41 of 96
Victim Organizations Report to the Nations -
Internal Control Weaknesses That
Contribute to Occupational Fraud
Vari ous factors ca n facilitate a perpetrator's ability to
commit and conceal an occupati onal fraud sc heme.
What are the primary internal control weaknesses that
contribute to occupational fraud?
.·················------------· Lack of reporting mechanism. <1%
,/ .-----···············---------Lack of clear lines of authority, 2% _,, _,,· ___ ,. _________________ _
--··-·········.:~---Lack of employee fraud education, 3%
·-. Lack of independent checks/audits, 5%
--------Lack of competent personnel in
oversight roles. 6%
------Other. 6%
SMALL COMPANIES
are more likely to
lack internal controls
MANAGER-LEVEL
PERPETRATORS
are more likely than
other perpetrators to
OVERRIDE EXISTING
CONTROLS
Employees
Managers
15%
22%
Owner/executives 17%
000
000 000
CDID 00
gJgJ ~~
LARGE COMPANIES
are more likely to have
controls overridden
Lack of
internal
conhols ~
■ <100 employees
POOR TONE AT THE TOP
was the primary risk factor in 22% of
all financial statement frauds.
'·._;,c.-1. __ . : . -fl . ,.,
I~ ,I: ...,t T
Asset
misappropriation
Corruption
36 Victim Organizations Repor1 to the Nations
Overri_d~ of 1B
existing
internal controls
■ 100+ employees
SOLE PERPETRATORS take advantage of a lack of controls,
while schemes involving COLLUSION are supported by poor
tone at the top and an ability to override controls
Lack of
internal controls
Override of existing
internal controls
Poot tone
at the top
1 perpetrator
2 or more
perpetrators
Background Checks Run on the
Perpetrators
Although most occupational fraud
perpetrators do not have a crimi-
nal history (see Figure 39 on page
48), it is still prudent for organiza-
tions to run background checks
(to the extent legally permissible)
during the hiring process to avoid
letting known fraudsters in through
the front door. As noted in Figure
25, however, only approximately
half of the victim organizations
in our study undertook this due
diligence step when hiring the
perpetrator. Interestingly, of the
52% of organizations that did
conduct a background check, 13%
of them uncovered a red flag in
the perpetrator's background and
proceeded with the decision to
hire them anyway.
When running background checks,
organizations might choose to
prioritize different aspects of an
individual's background. Figure
26 shows that, of the background
checks conducted by the victim
organizations in our study, 81%
included a check on the perpetra-
tor's employment history and 75%
included a check of the perpetra-
tor's criminal background.
April 5, 2022
FIG. 25 Was a background check run on the perpetrator prior to hiring?
Did the background check
reveal existing red flags?
No __ 87%
Yes 13%
FIG. 26 What types of background checks were run on the
perpetrator prior to hiring?
Employment history
Criminal checks
Reference checks 56%
Education verification
Credit checks
Drug screening
Other
Item #11 Page 43 of 96
Victim Organizations Report to the Nations -
-
PERPETRATORS
One of the key goals of our study is to identify the common characteristics
,rnd risk profiles of those who commit occupr1tionr1I frciud. Our survey
included several questions focused on the fraud perpetrators' job
details, basic demographics. prior misconduct, and behavioral
warning signs. This information was compiled to help
organizations better understand and identify the risks
and red flags of fraud in their own workforces.
Perpetrator's Position FIG. 27 How does the perpetrator's level of authority
The perpetrator's level of au-relate to occupational fraud?
thority within an organization 41%
tends to strongly correlate with
the size of a fraud. Owners/ex-35%
ecutives accounted for only 20% "' of the frauds in our study, but w
"' <t the median loss in those cases u
(USD 600,000) far exceeded the LL
0 20%
losses caused by managers and .... z w staff-level employees. This is u a::
consistent with our past studies, w
0.
all of which found that losses
tend to rise in tandem with a 3%
fraudster's level of authority. -Owners/executives are generally Employee Manager Owner/executive Other
in a better position to override • controls than their lower-level
counterparts, and they often $60,000
have greater access to an orga-
nization's assets. Both of these $150,000 "' facts might help explain why "' 0
losses attributable to this group ..... $230,000 z tend to be so much larger. <t
0 w ::.
$600,000
April 5, 2022 Item #11 Page 44 of 96
Perpetrators Report to the Nations
As seen in Figure 28, the
length of fraud schemes also
tends to rise in correlation with
the perpetrator's authority. The
median duration of a fraud
committed by an owner/execu-
tive was 24 months, compared
to 18 months for schemes
committed by managers and 12
months for those committed by
staff-level employees.
Perpetrator's Tenure
FIG. 28 How does the perpetrator's level of authority relate to
scheme duration?
24 months
z ~ 18 months .... <t ct 12 months :>
0
z
<t
0 w
:l:
Employee Manager Owner/executive
The longer a fraud perpetrator works for a company, the more damage that person's scheme is likely to cause,
as shown in Figure 29. Those who had been with the victim organization for at least ten years stole a median
USD 200,000, which was four times greater than the median loss caused by employees with less than one
year of tenure.
FIG. 29 How does the perpetrator's tenure relate to occupational fraud?
9% <1year $50,000
46% 1-5 years $100,000
22% 6-10 years $190,000
23% >10 years $200,000
PERCENT O F CASES MEDIAN LOSS
April 5, 2022 Item #11 Page 45 of 96
Perpetrators Report to the Nations -
-
The impact of tenure on fraud losses remains evident even when we control for the fraudster's level of authority.
In Figure 30 we divided all fraudsters into two groups: those who had been with their organizations five years
or less and those who had been with their organization six years or longer. Next. we compared the median loss
caused by these two groups at three levels of authority: owner/executive, manager, and employee.
At every level, the longer-tenured fraudsters caused significantly larger losses.
What this tells us is that longer-tenured
fraudsters do not steal more merely because
they have been promoted over time to higher
levels of authority. Instead, their added
experience with their organizations seems to
improve their skills or abilities related to com-
mitting fraud. This might be because they be-
come better at identifying gaps or weaknesses
in internal controls, because they become
more trusted (and thus are subject to lower
levels of review by peers and supervisors), or
because they learn over time how others have
successfully committed fraud. Regardless, this
data indicates that the ability to defraud an
organization seems to be something people
improve at with experience.
FIG. 30 How does the perpetrator's tenure relate to
median loss at different levels of authority?
Employee
• $100,000
1 $50,000
~6 years
■ sSyears
Manager
$164,000
Owner/executive
$700,000
MEDIAN LOSS
Perpetrator's Department
Departmenr Number of cases Percent of cases Median loss
Figure 31 is a heat map showing the Operations 288 15% $72,000
frequency and median loss of fraud Accounting 277 14% $200,000
schemes based on the perpetrator's Executive/upper management 234 12% $596,000
department. This illustrates the relative Sales 225 11% $94,000
Customer service 175 9% $86,000
risks of occupational fraud in the Administrative support 116 6% $76,000
different parts of a typical organization, Finance 101 5% $100,000
which may help anti-fraud profession-Purchasing 96 5% $200,000
als effectively allocate anti-fraud con-Information technology 69 3% $200,000
trols and resources. For example, the Facilities and maintenance 60 3% $100,000
executive/upper management team Warehousing/inventory 60 3% $85,000
Board of directors 45 2% $750,000
and the accounting department were Marketing/public relations 40 2% $100,000
both associated with high frequency Manufacturing and production 35 2% $275,000
and median loss, which indicates that Human resources 27 1% $40,000
fraud risks in these areas should be Research and development 14 1% $350,000
carefully addressed in any anti-fraud Legal 13 1% $195,000
program. ·Departments with fewer than 10 cases were omitted
April 5, 2022 Item #11 Page 46 of 96
Perpetrators Report to the Nations
FIG. 31 What departments pose the greatest risk for occupational fraud?
$750,000
$700,000
$650,000
$600,000
$550,000
$500,000
$450,000
$400,000
$350,000
$300,000
$250,000
$200,000
$150,000
$100,000
$50,000
$0
Manufacturing and production 0
Legal
0
Purchasing
0 0
Information
technology
Facilities and
Marketing/ maintenance Finance
public relations O O 0
0
0
Warehousing/inventory
Human resources
0% 2% 4%
LESS RISK
0
Administrative
support
6%
April 5, 2022
8% 10% 12% 14% 16%
MORE RI SK
Item #11 Page 47 of 96
Perpetrators Report to the Nations -
-
Schemes Based on Perpetrator's Department
The eight departments shown in Figure 32 accounted for 76% of all occupational frauds in our study. The spe-
cific fraud schemes used by perpetrators in these departments are presented to help organizations assess risk
and develop effective anti-fraud controls within these high-risk areas. Boxes are shaded from yellow to red,
with darker boxes indicating higher-frequency schemes for each department.
FIG . 32 What are the most common occupational fraud schemes in high-risk departments?
DEPA RTMENT Cases
288
277
234
225
175
116
101
96
LESS RIS K
April 5, 2022
Perpetrators Report to the Nations
15%
5%
>-c: "' ~ ..!!!
.s;; VI ro u
5%
8%
8%
10%
4%
"O C: ro .s;;
C: 0
.s;; VI ro u
10%
11%
12%
4%
C: "' E >-ro 0.
"O Cl C: C: ft)·= -'<"' u 0. 6~
5%
2%
C: 0 :g_
2 8
l!l C: "' E ~ :::,
D E -~
el C: "' 0. )( LU
6%
14%
14%
7%
7%
8%
1%
8%
14%
7%
.s;; VI B C: 0 z
15%
11% -
9%
12%
12% -
Item #11
8%
12%
2%
2%
9%
9%
2%
Cl C: .E
E :i: "'
3% 9%
5% -
3% 10%
'
4% 10%
2% -
3% 12%
3% 8%
0% 4%
MORE RISK
Page 48 of 96
Perpetrator's Gender
As shown in Figure 33, more than 70% of
the perpetrators in our study were males.
Men also caused a significantly larger
median loss (USD 150,000) than women
(USD 85,000). This is consistent with our
past studies, all of which have found a sig-
nificant gender disparity in fraud loss and
frequency.
Perpetrator's Gender Based on Region
There was a large variance in the gender
distribution of occupational fraudsters
based on geographic region. Figure
34 shows that in the United States and
Canada, males accounted for only 59% of
occupational fraud perpetrators, whereas
in Southern Asia and the Middle East and
North Africa, men committed more than
90% of occupational frauds.
FIG. 33 How does the perpetrator's
gender relate to occupational fraud?
"' w "' <(
u
u.
0 .... z w u
"' w a.
VI
"' 0 ..,
z
<(
0 w
:E
72%
Male
28%
I
Female
$85,000
-
Position of Perpetrator Based on Gender
We examined gender distribution and median loss data based on the perpetrator's level of authority, as shown
in Figure 35. At all levels of authority (employee, manager, and owner/executive), males committed a much
larger percentage of frauds than women did. Male owners/executives and managers also accounted for much
larger losses than their female counterparts. This was particularly true at the owner/executive level, where the
median loss caused by men (USD 795,000) was more than four times larger than the median loss caused by
women (USD 172,000). At the employee level, however, losses caused by males and females were equal.
April 5, 2022
Perpetrators Report to the Nations
FIG. 35 How do gender distribution and median loss vary based on the
perpetrator's level of authority?
VJ w
VJ
<( u
u.
0
>-z w u "' w a.
• VJ
VJ
0 ...,
z ~
0 w :::;
64%
Employee
--$60,000 $60,000
■ Male ■ Female
86%
73%
Manager Owner/executive
$173,000 $172,000
$795,000
Item #11 Page 50 of 96
Perpetrator's Age
The age distribution of fraud perpetrators in our study was bell-shaped, with 53% of fraudsters between
the ages of 31 and 45. Median losses, on the other hand, tended to rise along with the age of the perpetra-
tor. Those in the 56 to 60 and 60+ age ranges toget her accounted for less than 10% of all cases. but they
caused median losses of USD 400,000 and USD 575,000, respectively, which were by far the highest losses
in any age range.
April 5, 2022
(/)
UJ
(/)
cl: u
LL
0
I-z
UJ u
0:
UJ
Q.
(/)
(/)
0
...J
z
cl:
0
UJ
~
FIG . 36 How does the perpetrator's age relate to occupational fraud?
19%
18%
16%
14%
10%
8%
6%
4%
3%
<26 26-30 31-35 36-40 41-45 46-50 51-55 56-60 >60
$20,000
$65,000 $80,000
$150,000 $141,000
$213,000 $207,000
$400,000
$575,000
Item #11 Page 51 of 96
Perpetrators Report to the Nations -
-
Perpetrator's Education Level
FIG. 37 How does the perpetrator's education
level relate to occupational fraud?
"' w
"' " u
u..
0 ... z w u
"' w
Q.
"' "' 0 -' z
" 0 w ::E
22%
High school
graduate or less
$80,000
14%
I
Some
university
$150,000
49%
15%
I
University Postgraduate
degree degree
$175,000
$200,000
We also found a correlation between the per-
petrator's education level and median loss.
Figure 37 shows that fraudsters with a high
school degree or less caused a median loss of
USD 80,000, while those with a postgraduate
degree caused a median loss of USO 200,000.
Generally, we would expect losses to correlate
with education because those with higher levels
of education tend to hold higher positions of
authority and might also have greater technical
capabilities for committing fraud.
April 5, 2022
Perpetrators Report to the Nations
LEVEL OF AUTHORITY
Most occup<1t1011al f1c1uds are
corn1111tted by ;;rnployn·-IPvel 01
lllilllilge,-levPI pPI SOllllPI
But flilUclS l)y OW11('15/('XPCUtives
ill(' rnucll moll' t1<1rrnful.
f'I ;,i( IN I ii , /,'--c.,
HIGH-RISK DEPARTMENTS
Operations
Accounting
Executive/upper management
Sales
Customer service
Administrative support
Finance
Purchasing
15%
14%
12%
11%
9%
6%
5%
5%
MEDIAN LOSS
$200,000
C®J.
MEDIAN LOSS
$100,000
C®l
5 YEARS 6 YEARS
OR LESS OR MORE
♦,
Profile of a Fraudster
Our study includes perpetrator data from more than
2,000 fraud cases, which can help organizations assess
fraud risk in their own workforces.
TENURE ,--------
Occupational fraudsters
who had been with
their organizations at
least 6 years caused
TWICE the loss of
GENDER
Males committed
more frauds and caused
higher losses.
less-tenured employees.
0 $150,000
Median loss
0 2a'!!\ $85,000
Median loss OF CASES \._
FEMALE
/ 0
EDUCATION
64%
of occupational
fraudsters had a
university degree
or higher.
No university degree
University degree or higher
$195,000 ~Jf~AN
Older fraudsters
caused much larger
median losses
40-54
AGE
Pc-,petrators Report !o the Nations 47
-
Collusion by Multiple
Perpetrators
Figure 38 shows that 51% of
frauds in our study were com-
mitted by two or more fraudsters
working in collusion. Losses
tended to increase with multi-
ple perpetrators-particularly
when three or more individuals
conspired to commit fraud. One
reason collusive frauds might be
more costly is that multiple fraud-
sters working together might
be better able to undermine the
systems of separated duties and
independent verification that are
at the heart of many anti-fraud
controls.
Perpetrator's
Criminal Background
Our past studies have shown
that most occupational fraudsters
have no prior criminal history
before they commit their crimes,
and our current data reinforces
those findings. Only 4% of the
perpetrators in this study had
been previously convicted of a
fraud-related offense. It should
be noted that 41% of the occu-
pational frauds in our study were
never reported to law enforce-
ment (see Response to Fraud
infographic on page 55), which
is also consistent with our past
research. This indicates that the
true number of repeat offenders
is probably higher than what can
be determined through criminal
records.
April 5, 2022
Perpetrators Rep0rt to the Nations
FIG. 38 How does the number of perpetrators in a scheme relate to
occupational fraud? .. • ONE
PERPETRATOR
-$90,QQQ ~~ian
TWO
PERPETRATORS
-$105 ,QQQ ~itan
THREE OR MORE
PERPETRATORS
$350,QQQ ~:~ian
FIG. 39 Do perpetrators tend to have prior fraud convictions?
■ Never charged or convicted (89%)
Charged, but not convicted (7%)
■ Had prior convictions (4%)
Item #11 Page 54 of 96
Perpetrator's Employment History
Figure 40 shows that 86% of fraudsters had never
been punished or terminated for fraud-related
conduct prior to the crimes reported in this study.
As with the criminal conviction data in Figure 39,
this tends to indicate that most occupational
fraudsters are first-time offenders. But also like the
criminal conviction data, there is reason to believe
that this data might understate the true number
of repeat fraudsters. According to Figure 44 on
page 54, 5% of fraudsters received no internal
punishment, 10% were permitted to resign, and 11%
signed private settlement agreements with the vic-
tim organizations. This suggests that a significant
number of occupational fraudsters will have no
record of employment-related discipline even after
having been caught by their employers.
FIG. 40 Do perpetrators tend to have prior
employment-related disciplinary actions for fraud?
■ Never punished or terminated (86%)
Previously terminated (8%)
■ Previously punished (8%)
April 5, 2022
Behavioral Red Flags
Displayed by Perpetrators
The typical occupational fraud scheme lasts
14 months before it is detected; during this
time, the perpetrator will often display certain
behavioral traits that tend to be associated
with fraudulent conduct. Figure 41 on pg. 50
shows the relative frequency of 17 common
behavioral red flags. Significantly, all of these
red flags had been identified by someone in
the respective victim organizations before the
frauds were detected.
At least one behavioral red flag was present
in 85% of the cases in our study, and multi-
ple red flags were present in 49% of cases.
The seven most common red flags were: (1)
living beyond means; (2) financial difficulties;
(3) unusually close association with a vendor
or customer; (4) excessive control issues or
unwillingness to share duties; (5) unusual irri-
tability, suspiciousness, or defensiveness; (6)
a general "wheeler-dealer" attitude involving
shrewd or unscrupulous behavior; and (7) re-
cent divorce or family problems. At least one
of these seven red flags had been identified
before the perpetrator was caught in 76% of
all cases.
Item #11 Page 55 of 96
Perpetrators Report to the Nations
FIG. 41 How often do perpetrators exhibit behavioral red flags?
Living beyond means
Financial difficulties
Unusually close association with vendor/customer
No behavioral red flags
Control issues, unwillingness to share duties
Irritability, suspiciousness, or defensiveness
"Wheeler-dealer" attitude
Divorce/family problems
Addiction problems
Complained about inadequate pay
Refusal to take vacations
Excessive pressure from within organization
Past employment-related problems
Social isolation
9%
8%
7%
7%
6%
6%
Complained about lack of authority -5%
Past legal problems -5%
Excessive family/peer pressure for success -4%
Instability in life circumstances -4%
Other -4%
April 5, 2022
Perpetrators Report to the Nations
15%
15%
13%
13%
12%
19%
26%
Item #11
Non-Fraud-Related Misconduct
by Perpetrators
In order to determine if there is a correlation between
fraud and other forms of workplace violations, we
asked survey respondents whether the fraudster had
been engaged in non-fraud-related misconduct prior
to or during the time of the frauds. Figure 42 shows
that 45% of occupational fraudsters had engaged in
some type of non-fraud-related misconduct. The most
common was bullying or intimidation (20% of cases),
followed by excessive absenteeism (13%) and exces-
sive tardiness (12%).
FIG. 42 Do fraud perpetrators also
engage in non-fraud-related misconduct?
Which forms of non-fraud misconduct are most
common among fraud perpetrators?
Bullying or intimidation
20%
Excessive absenteeism
13%
Excessive tardiness
12%
Excessive Internet browsing
8%
Other
4%
Sexual harassment
-3%
Visiting inappropriate internet sites
-2%
April 5, 2022
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
resentment 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 43 shows, 42% of fraudsters had experi-
enced 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 (13% of
cases) and fear of job loss (12%).
FIG. 43 Do fraud perpetrators experience negative
HR-related issues prior to or during their frauds?
Which HR-related issues are most commonly
experienced by fraud perpetrators?
Poor performance evaluations
Fear of job loss
Denied raise or promotion
Actual job loss
Cut in pay
4%
Cut in benefits
4%
Other
3%
Demotion
-2%
Involuntary cut in hours
-2%
6%
Item #11
13%
12%
10%
Page 57 of 96
Perpetrators Report to the Nations -
Behavioral Red Flags of Fraud
Recognizing the behavioral clues displayed by fraudsters
can help organizations more effectively detect fraud and
minimize their losses.
7 KEY WARNING SIGNS
42 1%
... :··o!\ \ ~JJ .'.
19 % 15%
Living beyond
means
Financial
difficulties
Unusually close
association with
vendor/customer
Control issues,
unwillingness
to share duties
LIVING BEYOND MEANS
50%,
ii ' . '; .l'v--.
'L• t~) :c'? '. :_, ,: .... .
13 %
0/. OF ALL FRAUDSTERS 70 displayed at least one
BEHAVIORAL RED FLAG
while committing their crimes.
13% 12 %
Irritability.
suspiciousness,
or defensiveness
"Wheeler-dealer"
attitude
Divorce/family
problems
Living beyond
means
A fraudster living beyond
his or her means is the
most common red flag by
a sizable margin.
This has ranked as the
#1 red flag in every study
since 2008.
30%
20%
10%1 ' '----------------
'08 ·10 ·12 ·1a ·20
52 Perpetrators Report to the Nittions
Financial difficulties
Unusually close c1ssociJtion v✓ith vondor.·customer
Control issues. unwillingness to shc1re duties
Irritability, suspiciousness, or defensiveness
"Wheeler-dealer" attitude
Divorce/family problems
~-CLASSIFYING RED FLAG BEHAVIORS
In 52% of cases, the fraudster exhibited red fl ags
connected to their work duties.
Unusually close association with vendor/customer
Control issues, unwillingness to share duties
Irritability, suspiciousness, or defensiveness
13 .
"Wheeler-dea ler" attitude
Complained about inadequate pay
Refusa l to take vacations
l
ization ation : Excessive pressure from within organization
l
! Past employment-related problems
()
! Complained about lack of authority
In 63% of cases, the fraudster exhibited red flag behavior
associated with his or her Rersonal life.
: Living beyond means
i Financial difficulties i Financial difficulties
i Divorce/family problems
i Addiction problems
: Social isolation
: Past legal problems -s : In stability in life circumstances -4
: Excessive family/peer pressure for success -4 or success success
JOB PERFORMANCE
ASA
WARNING SIGN
A fraud perpetrator's job
performance will often
suffer while the scheme is
taking place. Each of
these performance-related
issues were cited in at least
10% of cases.
'a • 13%
POOR PERFORMANCE EVALUATIONS
13%
EXCESSIVE EXCESSIVE ABSENTEEISM
FEAR OF FEAR OF JOB LOSS
12%
EXCESSIVE TARDINESS
gilv, 10%
DENIED RAISE OR PROMOTION
Perpetrators Report to the Nu\ions 53
Internal Action Taken
Against Perpetrator
Once an internal fraud is sub-
stantiated, the victim organization
must decide what to do with the
perpetrator. Termination was by
far the most common response
to fraud, but one-third of cases
ended with a different internal
result. Many cases resulted in
relatively light punishments, where
the perpetrator had already left
the organization (11%), resigned
(10%), or received no punishment
at all (5%).
FIG. 44 How do victim organizations punish fraud perpetrators?
Termination
66%
Perpetrator was no longer with organization -11%
Settlement agreement -11%
Permitted or required resignation -10%
Probation or suspension -9%
No punishment • 5%
Other • 5%
INTERNAL PUNISHMENT
80% OF PERPETRATORS
• • • • 0 ................ ~
RECEIVED SOME
PUNISHMENT
Owners/executives are less likely
to receive punishment
TERMINATION 1or FRAUD
45%
Managers
Employees
Received NO PUNISHMENT
Owners/executtves
an agers
Employees 2%
Response to Fraud
Organizations can respond to fraud
internall y, through civil litigation, and by
referring the case to law enforcement.
These are the results of such efforts.
CIVIL LITIGATION
MEDIAN LOSS ~ $
resulting in ~
CIVIL LITIGATION .28%
of cases resulted in
civil litigation.
$400,000
·-----------------------------------------------------·
CRIMINAL PROSECUTION
MEDIAN LOSS ~
in cases ✓
referred to $
LAW ENFORCEMENT
$200,000
59%
of cases were
referred to law
enforcement
·-----------------------------------------------------· ' +
Of these cases:
56% JJleaded guilty/no contest
23% were convictea at trial
12% were declined prosecution
Case Results Report to the Nations 55
-
Reasons for Not Referring Cases to Law Enforcement
As seen on the Response to Fraud infographic on page 55, many victims never report their cases to law
enforcement. We asked respondents in those cases to tell us why. Figure 45 shows a timeline comparison of
victims' reasons for non-referral; this year's report is the first time that fear of bad publicity was not the primary
reason. Instead, 46% of victims determined that their internal discipline was sufficient. Coupled with the find-
ings that private settlements and civil suits have also risen, it appears there may be a general trend of organi-
zations seeking to resolve fraud cases internally or privately rather than through the criminal justice system.
FIG. 45 Why do organizations decline to refer cases to law enforcement?
Fear of bad publicity
Internal discipline sufficient
Private settlement
Too costly
Lack of evidence
Civil suit
Perpetrator disappeared
2012
Recovering Fraud Losses
2014 2016 2018
For many victim organizations, recovering losses is the key concern once fraud has been
detected. However, most organizations (54%) in our study did not recover any of their
losses. We also analyzed whether there were regional differences in victim organizations'
success in recovering some or all fraud losses, and our findings suggest that recovering
lost assets might be more challenging in some regions than others. As shown in Fig-
ure 46, Eastern Europe and Western/Central Asia was the most difficult region for
recovering fraud losses, with 61% of organizations recovering nothing, followed closely
by Latin America and the Caribbean (60%). Western Europe and Southern Asia were the
only regions where more than half of victims made at least some recovery of fraud losses.
April 5, 2022 Item #11
Case Results Report to the Nations
50%
40%
30%
20%
10%
0%
2020
Page 62 of 96
FIG. 46 How does the recovery of fraud losses vary by region?
FIG. 47 How does the type of scheme relate to fines
incurred by victim organizations?
19%
U) w
U) 10% < 9%
I
u
u. I 0
f-z w u "' w
0..
Asset Corruption Financial
misappropriation statement fraud
U) I w z ;;: $50.000 z <
0 w
::E
$150.000
$221,000
April 5, 2022
Fines Against Victim Organizations
Beyond losses directly caused by occupational fraud,
some victims also receive fines from authorities re-
sulting from the fraud, such as when the victim failed
to take sufficient steps to prevent bribery or violated
financial reporting requirements. Ou r data indicates
that financial statement fraud schemes are the most
likely to result in a fine against the victim organization
(19% of cases); these cases also result in the largest
median fine (USO 221,000). While fines resulting
from corruption and asset misappropriation schemes
occurred at a similar rate (10% and 9%, respectively),
the median fine in corruption cases was three times
higher (USO 150,000).
Item #11 Page 63 of 96
Case Results Report to the Nations -
METHODOLOGY
TIH· 2020 Report to the Not1ons is b,1secl 011 the results of ti1c 2019 G/o/Jo/ Fraud Swvey.
,111 orili1H' ,,urvcy o:v.'11ccl to 51.608 Certified F1,1ucJ Ex,1:11i11c1s r,CFb) f10;11 July 201c, to
S:·ptc·m:wr 2019. As pc,1t of tiw survey. rcspo11cl011ts v101c ,l",kccl to f)toviclc il r1 .111,1t \'C'
clc-sc1:pt1011 of tl1c s,11glr, lc11gc,st occupc1tio11c1I irm1cl c,1sc tllcy l1c1ci irwcsti~Jcrtccl s;11u·
J,111L1<11y 2018. A:_1clitio1Hlly. ,11tr_•1 c,111pl!::ti11g ll'L' su1vc:y till' fir-:,l tirlll' 11•:-,por1~:c11ts :;, le·
prov1cJeci tlP optio11 to sul)1nit i11fo1 m,1tio11 211)out il seco11cl u,s,0
Respo11cle11ts were tl1cn present-
ed wrth 77 questions r eg,1r ding
the p,1rticul,11 dct,1rls of the fr,1ud
C,7SC. 111cluclrnq infornliltion ilOOlll
the perpctr,1tor. tl1c victim org,111i-
Zi1t1011. ,111d 1110 metl1ods of fr c1ud
c111ployccl. ,1s v1cll c1s fraud trends
m gc'ncli1!. (Respondents wcr c not
,iske>cl to ide>ntify the perpetrc1tor or
tl1c victim) We received 7.516 total
responses to tile survey. 2.504 of
v1l11cl1 v1ere us,1blc for purposes
of this report. The dc1t,1 contAinecJ
l1e1cin is based solely on the in-
forrn,1tion proviclcd in these 2.504
survey responses.
58 Methodology!,•,;, ... :·,"' ll •'. ·,
Cases submitted were required to
meet the following four criteria:
1. The case must have involved occupational
fraud (defined as fraud committed by a
person against the organization for which
they work).
2. The investigation must have occurred be-
tween January 2018 and the time of survey
participation.
3. The investigation must have been
complete at the time of survey
participation.
4. The respondent must have been reasonably
sure the perpetrator(s) was (were) identified.
Analysis Methodology
Percentages
In calculating the percentages discussed throughout
this report, 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 they did
not know the answer to a question. Consequently, the
total number of cases included in each analysis varies.
In addition, several survey questions allowed partici-
pants to select more than one answer. Therefore, the
sum of percentages in many figures 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 category data.
A
---------
April 5, 2022
Loss Amounts
Unless otherwise indicated, all loss amounts
discussed throughout the report are calculated
using median loss rather than mean, or aver-
age, loss. Using median loss provides a more
conservative-and we believe more accurate-
picture of the typical impact of occupational
fraud schemes. The statistical appendix to this
report (see pages 78-81) provides a more ho-
listic view of the losses in our study, reflecting
quartiles and average loss amounts for numer-
ous categories explored throughout the report.
To normalize the loss amounts reported to us
and ensure that cases with extremely large
losses were not identifiable, all average and
total loss amounts reported were calculated
using loss data that was winsorized at 5% (i.e.,
assigned all cases in the top 2.5% and bottom
2.5% the same value as the 97.5th percentile
and 2.5th percentile, respectively). Additionally,
we excluded median and average loss calcula-
tions for categories for which there were fewer
than ten responses.
Because the direct losses caused by financial
statement frauds are typically spread among
numerous stakeholders, obtaining an accurate
estimate for this amount is extremely difficult.
Consequently, for schemes involving financial
statement fraud, we asked survey participants
to provide the gross amount of the financial
statement misstatement (over-or under-state-
ment) involved in the scheme. All losses
reported for financial stateme nt frauds through-
out this report are based on those reported
amounts.
Item #11 Page 65 of 96
Methodology Repon to the Nations -
-
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
As noted in Figure 48,
39% of survey respon-
dents indicated that their
primary occupation is as
a fraud examiner/inves-
tigator, followed by 21%
who indicated they are
internal auditors.
April 5, 2022
Methodology Report to the Nations
FIG. 48 What was the primary occupation of survey participants?
Fraud examiner/investigator
39%
Internal auditor
21%
Accounting/finance professional
8%
Law enforcement
7%
Compliance and ethics professional
5%
Risk and controls professional -4%
External/independent auditor -3%
Consultant -3%
Other -3%
Corporate security and loss prevention -3%
Attorney
■ 1%
IT /computer forensics specialist
■ 1%
Bank examiner
■ 1%
Private investigator
■ 1%
Educator
<1%
Item #11 Page 66 of 96
Nature of Fraud Examination Role
More than half of the survey re-
spondents work in-house and
conduct fraud-related engagements
on behalf of a single company or
agency. In contrast, 26% work for a
professional services firm that con-
ducts fraud-related engagements
on behalf of client organizations,
and 19% work in law enforcement
and conduct fraud investigations of
other parties under their agency's
authority.
Professional Experience
The CFEs who participated in our
survey had a median 11 years of fraud
examination experience, with 30%
having more than 15 years of expe-
rience (see Figure 50). Additionally,
as Figure 51 shows, one-quarter of
survey participants have investigated
more than 20 cases of fraud during
the last two years, while 42% investi-
gated five or fewer cases during that
period.
April 5, 2022
16-20 cases (60/,)
11-15 cases (8%)
6-10 cases (19°/,)
,;5 cases (42%)
FIG. 49 What was the professional role of the survey participants?
In-house examiner
Other
2%
Law
enforcement
Professional
services firm
FIG. 50 How much fraud examination experience did
survey participants have?
21%
s 5 years
28%
20%
17%
13%
I
6-10 years 11-15 years 16-20 years >20 years
FIG. 51 How many fraud cases have survey
participants investigated in the past two years?
Item #11 Page 67 of 96
Methodology Report to the Nations -
FIG. 52 What are the most common occupational FIG. 53 How is occupational fraud initially detected
fraud schemes in the Asia-Pacific region? in the Asia-Pacific region?
Corruption Tip
51% 44%
Noncash Internal audit
18% 15%
Expense reimbursements Management review
16% 11%
Billing Other
7%
15% External audit
Financial statement fraud -7%
14% Account reconciliation
Cash on hand -5%
11% By accident
Payroll • 3% -8% Surveillance/monitoring
Skimming • 3% -8% IT controls
■ 2%
Check and payment tampering Document examination -7% ■ 2%
Cash larceny Confession -4% ■ 2%
Register disbursements Notification by law enforcement I 2% I 1%
-April 5, 2022
Asia.Pacific Report to the Nations
Item #11 Page 68 of 96
FIG . 54 What anti-fraud controls are the most common in
the Asia-Pacific region?
Control Percent of cases
External audit of financial statements 93%
Code of conduct 88%
Internal audit department 84%
Management certification of financial statements 80%
Management review 78%
External audit of Internal controls over financial reporting 75%
Hotline 72%
Independent audit committee 71%
Fraud training for employees 64%
Fraud training for managers/executives 62%
Anti-fraud policy 59%
Employee support programs 50%
Dedicated fraud department, function, or team 50%
Formal fraud risk assessments 45%
Proactive data monitoring/analysis 43%
Surprise audits 36%
Job rotation/mandatory vacation 32%
Rewards for whistleblowers 15%
FIG. 55 How does the perpetrator's level of authority
relate to occupational fraud in the Asia-Pacific region?
C/1 w
C/1 < u
u.
0 ... z w u "' w
Q.
C/1
C/1
0 -'
z <
0 w
:I:
April 5, 2022
40%
Employee -$73,000
35%
21%
Manager Owner/
executive
$200.000
$1,200,000
FIG. 56 Cases by country in the
Asia-Pacific region
Country Number of cases
Australia 29
China 33
Hong Kong 11
Indonesia 36
Japan 8
Laos
Macau
Malaysia 19
Myanmar (Burma)
New Zealand 3
Philippines 24
Singapore 17
South Korea 5
Taiwan 2
Thailand 6
Vietnam 2
Total cases:
MEDIAN LOSS:
USO 195,000
Item #11 Page 69 of 96
Asia-Pacific Report to the Nations -
-
REGIONAL FOCUS
EASTERN EUROPE
AND WESTERN/
CENTRAL ASIA
FIG. 57 What are the most common occupational fraud FIG. 58 How is occupational fraud initially
schemes in Eastern Europe and Western/Central Asia? detected in Eastern Europe and Western/
Central Asia?
Corruption Tip
61%
Noncash Internal audit
22%
Billing Management review
17%
Other
Cash on hand
13% Surveillance/monitoring
Financial statement fraud -10% Document examination
Skimming --8% Account reconciliation
Expense reimbursements --7% Notification by law enforcement
■ Cash larceny -7% IT controls
■ Payroll External audit -5% ■
Check and payment tampering By accident ■ 4% ■
Register disbursements Confession
I 1% I
April 5, 2022 Item #11 Page 70 of 96
Eastern Europe and Western/Central Asia Report to the Nations
51%
14%
9%
6%
4%
3%
3%
2%
2%
2%
2%
1%
FIG . 59 What anti-fraud controls are the most common in
Eastern Europe and Western/Central Asia?
Control Percent of cases
External audit of financial statements 89%
Code of conduct 87%
Management review 84%
Internal audit department 80%
Management certification of financial statements 78%
Hotline 76%
Anti-fraud policy 73%
Independent audit committee 72%
External audit of internal controls over financial reporting 71%
Fraud training for employees 67%
Fraud training for managers/executives 66%
Dedicated fraud department, function, or team 58%
Formal fraud risk assessments 51%
Surprise audits 45%
Proactive data monitoring/analysis 42%
Employee support programs 29%
Job rotation/mandatory vacation 29%
Rewards for whistleblowers 9%
FIG. 60 How does the perpetrator's level of authority
relate to occupational fraud in Eastern Europe and
Western/Central Asia?
If) w
If)
<{ u
u..
0
1-z w u
a: w
a.
If)
If)
0
..J
z
<{
0 w
~
34%
Employee
$49,000
April 5, 2022
37%
26%
Manager Owner/
executive
$150,000
$454,000
FIG. 61 Cases by country in Eastern
Europe and Western/Central Asia
Country Number of cases
Albania
Azerbaijan
Bosnia and Herzegovina
Bulgaria 2
Czech Republic 5
Estonia
Georgia
Hungary 5
Kazakhstan 4
Kosovo 2
Lithuania
Moldova
North Macedonia 2
Poland 6
Romania 9
Russia 13
Serbia 14
Slovakia 3
Slovenia 4
Tajikistan
Turkey 13
Ukraine 4
Uzbekistan
Total cases:
MEDIAN LOSS:
USO 133,000
Item #11 Page 71 of 96
Eastern Europe and Western/Central Asia Report to the Nations -
-
REGIONAL FOCUS
LATIN AMERICA AND
THE CARIBBEAN
FIG. 62 What are the most common occupational fraud FIG. 63 How is occupational fraud initially
schemes in Latin America and the Caribbean? detected in Latin America and the Caribbean?
Corruption Tip
51%
Noncash Internal audit
23%
Financial statement fraud Management review
19%
Billing Notification by law enforcement
18% -Skimming External audit
13% -Expense reimbursements Other
10% ■
Cash on hand IT controls
10% ■
Payroll By accident
9% ■
Check and payment tampering Account reconciliation
8% ■
Cash larceny Document examination
8% I
Register disbursements Confession • 4% I
April 5, 2022 Item #11 Page 72 of 96
Latin America and the Caribbean Report to the Nations
55%
12%
9%
5%
4%
3%
3%
3%
3%
2%
1%
FI G. 64 What anti-fraud controls are the most common in
Latin America and the Caribbean?
Control Percent of cases
External audit of financial statements 88%
Code of conduct 88%
Internal audit department 81%
Management certification of financial statements 72%
Hotline 72%
External audit of internal controls over financial reporting 71%
Independent audit committee 67%
Management review 65%
Fraud training for employees 58%
Anti-fraud policy 56%
Fraud training for managers/executives 54%
Dedicated fraud department, function, or team 46%
Employee support programs 45%
Formal fraud risk assessments 44%
Surprise audits 40%
Proactive data monitoring/analysis 26%
Job rotation/mandatory vacation 16%
Rewards for whistleblowers 9%
FIG. 65 How does the perpetrator's level of authority
relate to occupational fraud in Latin America and the
Caribbean?
Vl w
Vl -,: u
u.
0 .... z w u
"' w a.
Vl
Vl
0
..J
z -,:
0 w ::;
April 5, 2022
30%
Employee -$90,000
46%
Manager
$250,000
20%
Owner/
executive
$800,000
FIG. 66 Cases by country in Latin
America and the Caribbean
Country Number of cases
Argentina 10
Bahamas 5
Barbados
Brazil 22
Chile 2
Colombia 10
Costa Rica 4
Cura~ao
Dominican Republic
Ecuador
Grenada 2
Haiti
Jamaica 3
Mexico 23
Peru 6
Saint Vincent and the Grenadines
Suriname
Trinidad and Tobago 5
Venezuela 2
Total cases:
MEDIAN LOSS:
USO 200,000
Item #11 Page 73 of 96
Latin America and the Caribbean Report to the Nations -
-
REGIONAL FOCUS
MIDDLE EAST
AND NORTH
AFRICA
FIG. 67 What are the most common occupational fraud
schemes in the Middle East and North Africa?
Corruption
Noncash
Skimming
Cash on hand
Cash larceny
Expense reimbursements
Billing
Financial statement fraud -Payroll -Check and payment tampering -Register disbursements
I
April 5, 2022
Middle East and North Africa Report to the Nations
52%
19%
16%
12%
9%
8%
8%
7%
5%
4%
2%
FIG . 68 How is occupational fraud initially
detected in the Middle East and North Africa?
Tip
46%
Internal audit
17%
Management review
9%
Other
7%
Account reconciliation -6%
By accident -4%
External audit -3%
Document examination -3%
IT controls
■ 2%
Surveillance/monitoring
I 1%
Notification by law enforcement
I 1%
Confession
I 1%
Item #11 Page 74 of 96
FIG. 69 What anti-fraud controls are the most common in
the Middle East and North Africa?
Control Percent of cases
External audit of financial statements 88%
Internal audit department 87%
Code of conduct 84%
Management certification of financial statements 83%
External audit of internal controls over financial reporting 74%
Management review 72%
Independent audit committee 72%
Hotline 72%
Fraud training for managers/executives 58%
Surprise audits 55%
Anti-fraud policy 55%
Fraud training for employees 55%
Dedicated fraud department, function, or team 46%
Formal fraud risk assessments 45%
Proactive data monitoring/analysis 41%
Employee support programs 34%
Job rotation/mandatory vacation 33%
Rewards for whistleblowers 17%
FIG. 70 How does the perpetrator's level of authority
relate to occupational fraud in the Middle East and North
Africa?
50%
38%
VI w
VI
<t u
u.
0
I-z w u 12% er: w a.
Employee Manager Owner/
executive -$98,000
VI VI
0
.J
z $300,000
<t
0 w
~
April 5, 2022 $600,000
FIG. 71 Cases by country in the Middle
East and North Africa
Country Number of cases
Bahrain 5
Cyprus 11
Egypt 6
Iraq 3
Israel
Jordan 4
Kuwait 9
Lebanon 4
Morocco 3
Oman 5
Qatar 5
Saudi Arabia 23
Tunisia 2
United Arab Emirates 46
Total cases:
MEDIAN LOSS:
USO 100,000
Item #11 Page 75 of 96
Middle East and North Africa Report to the Nations -
FIG. 72 What are the most common occupational fraud FIG . 73 How is occupational fraud initially
schemes in Southern Asia? detected in Southern Asia?
Corruption Tip
76% 48%
Noncash Internal audit
23% 18%
Billing Document examination
6% 17%
Financial statement fraud Management review
5%
12% Notification by law enforcement
Expense reimbursements -4% -10% Surveillance/monitoring
Skimming -4% -8% Other
Payroll -4%
■ 4% IT controls
Cash larceny -3%
■ 3% External audit -3%
Cash on hand Account reconciliation I 2% -3%
Register disbursements
I 1%
By accident
■ 2%
Check and payment tampering Confession
I 1% I 1%
-April 5, 2022
Southern Asia Report to the Nations
Item #11 Page 76 of 96
FIG. 74 What anti-fraud controls are the most common in
Southern Asia?
Control Percent of cases
External audit of financial statements 88%
Management certification of financial statements 86%
Internal audit department 86%
Code of conduct 81%
External audit of internal controls over financial reporting 76%
Management review 72%
Independent audit committee 70%
Hotline 66%
Anti-fraud policy 64%
Fraud training for managers/executives 55%
Fraud training for employees 51%
Employee support programs 43%
Surprise audits 43%
Dedicated fraud department, function, or team 36%
Formal fraud risk assessments 35%
Proactive data monitoring/analysis 34%
Job rotation/mandatory vacation 29%
Rewards for whistleblowers 20%
FIG. 75 How does the perpetrator's level of authority
relate to occupational fraud in Southern Asia?
Vl w
Vl
<( u
u..
0
t-z
UJ u
0:
UJ a.
Vl
Vl
0
~
z
<(
0
UJ
:E
23%
Employee
$28,000
April 5, 2022
42%
Manager
$117,000
31%
Owner/
executive
$575,000
FIG. 76 Cases by country in Southern Asia
Country Number of cases
Afghanistan 3
Bangladesh 4
India 77
Nepal
Pakistan 15
Sri Lanka 3
Total cases:
MEDIAN LOSS:
USO 117,000
Item #11 Page 77 of 96
Southern Asia Report to the Nations -
FIG. 77 What are the most common occupational fraud FIG. 78 How is occupational fraud initially
schemes in Sub-Saharan Africa? detected in Sub-Saharan Africa?
Corruption Tip
56% 48%
Internal audit
19% 14%
Noncash Management review
18% 11%
Other Cash on hand -6% 14%
Account reconciliation
Skimming -4%
13% External audit
Expense reimbursements -4%
11% Document examination
Cash larceny -3%
11% By accident
Financial statement fraud -3%
11% Surveillance/monitoring
■ 2%
Check and payment tampering IT controls 8% ■ 2%
Payroll Notification by law enforcement -5% I 1%
Register disbursements Confession
■ 3% I 1%
-April 5, 2022
Sub-Saharan Africa Report to the Nations
Item #11 Page 78 of 96
FIG. 79 What anti-fraud controls are the most common in
Sub-Saharan Africa?
Control Percent of cases
External audit of financial statements 92%
Code of conduct 86%
Internal audit department 85%
Management certification of financial statements 82%
External audit of internal controls over financial reporting 79%
Management review 70%
Hotline 69%
Independent audit committee 69%
Anti-fraud policy 61%
Fraud training for employees 57%
Fraud training for managers/executives 54%
Dedicated fraud department, function, or team 49%
Employee support programs 49%
Surprise audits 48%
Formal fraud risk assessments 44%
Proactive data monitoring/analysis 31%
Job rotation/mandatory vacation 28%
Rewards for whistleblowers 21%
FIG. 80 How does the perpetrator's level of authority
relate to occupational fraud in Sub-Saharan Africa?
"' w
"' ~ u
u..
0 ... z w u
"' w a..
"' "' 0 _,
z ~
0 w :::;
April 5, 2022
41%
Employee -$40,000
37%
18%
Manager Owner/ executive
$100,000
$979,000
FIG . 81 Cases by country in Sub-Saharan
Africa
Country Number of cases
Angola
Benin
Botswana 5
Burundi
Cameroon 4
Central African Republic 2
Chad
Cote d'Ivoire 4
Democratic Republic of the Congo 5
Ethiopia 2
Gabon
Ghana 12
Kenya 53
Lesotho 2
Liberia 8
Madagascar 4
Malawi 10
Mauritius 6
Mozambique 3
Namibia 3
Nigeria 49
Rwanda 3
Senegal 2
South Africa 77
Sudan 2
Swaziland
Tanzania 7
Togo 4
Uganda 16
Zambia 3
Zimbabwe 9
Total cases:
MEDIAN LOSS:
USO 100,000
Item #11 Page 79 of 96
Sub-Saharan Africa Report to the Nations -
-
REGIONAL FOCUS
UNITED STATES
AND CANADA
FIG. 82 What are the most common occupational fraud
schemes in the United States and Canada?
Corruption
33%
Billing
26%
Expense reimbursements
19%
Noncash
18%
Check and payment tampering
14%
Payroll
13%
Skimming
11%
Financial statement fraud
10%
Cash on hand
10%
Cash larceny
8%
Register disbursements -3%
April 5, 2022
United States and Canada Report to the Nations
FIG. 83 How is occupational fraud initially
detected in the United States and Canada?
Tip
Management review
Internal audit
By accident
Other
Account reconciliation -Document examination -External audit -Surveillance/monitoring -Notification by law enforcement -Confession
I
IT controls
I
Item #11 Page 80 of 96
37%
15%
14%
7%
6%
4%
4%
4%
3%
3%
1%
1%
FIG. 84 What anti-fraud controls are the most common in
the United States and Canada?
Control Percent of cases
Code of conduct 80%
External audit of financial statements 72%
Internal audit department 71%
Employee support programs 71%
Management review 68%
Management certification of financial statements 67%
Independent audit committee 61%
Hotline 57%
External audit of internal controls over financial reporting 54%
Fraud training for managers/executives 51%
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 . 85 How does the perpetrator's level of authority relate
to occupational fraud in the United States and Canada?
Vl w
Vl
<I u
IL
0
I-z w u "' w
Q.
Vl
Vl
0
...J
z <I
0 w :.
April 5, 2022
44%
Employee -$60,000
32%
Manager
$139,000
21%
Owner/
executive
$438,000
FIG. 86 Cases by country in the
United States and Canada
Country Number of cases
Canada 66
United States 829
Total cases:
MEDIAN LOSS:
USO 120,000
46%
OF ALL CASES
Item #11 Page 81 of 96
United States and Canada Report to the Nations -
FIG. 87 What are the most common occupational fraud FIG. 88 How is occupational fraud initially
schemes in Western Europe? detected in Western Europe?
Corruption Tip
39%
Billing Internal audit
15% 17%
Noncash Management review
15% 12%
Expense reimbursements By accident
12% 9%
Financial statement fraud Other
11% -6%
Cash on hand Surveillance/monitoring
11% -5%
Check and payment tampering Notification by law enforcement
7% -5%
Cash larceny External audit
6% • 3%
Skimming Account reconciliation -5% ■ 2%
Payroll IT controls -4% ■ 2%
Register disbursements Document examination
■ 2% ■ 2%
April 5, 2022
-Western Europe Report to the Nations
Item #11 Page 82 of 96
FIG. 89 What anti-fraud controls are the most common in
Western Europe?
Control Percent of cases
External audit of financial statements 89%
Code of conduct 87%
Management certification of financial statements 81%
Internal audit department 80%
External audit of internal controls over financial reporting 79%
Management review 74%
Independent audit committee 70%
Hotline 65%
Anti-fraud policy 65%
Fraud training for managers/executives 62%
Fraud training for employees 61%
Employee support programs 57%
Formal fraud risk assessments 53%
Dedicated fraud department, function, or team 51%
Proactive data monitoring/analysis 44%
Surprise audits 43%
Job rotation/mandatory vacation 25%
Rewards for whistleblowers 6%
FIG. 90 How does the perpetrator's level of authority
relate to occupational fraud in Western Europe?
"' w
"' " u
u. 0
I-
% w u .. w ..
"' "' g
z " 0 w
::£
April 5, 2022
45%
Employee -s100.ooo
33%
17'l\
Manager Owner/
executive
■ $150,000
$1,350,000
FIG. 91 Cases by country in Western
Europe
Country Number of cases
Austria 2
Belgium 3
Denmark 2
Finland 3
France 6
Germany 12
Greece 21
Ireland 2
Italy 10
Luxembourg
Netherlands 12
Spain 13
Switzerland 17
United Kingdom 24
Total cases:
MEDIAN LOSS:
USO 139,000
7%
OF ALL CASES
Item #11 Page 83 of 96
Western Europe Report to the Nations -
-
Cases 25th percentile Median (50th) 75th percentile Mean•
/111 ch,, 2 448 $29 ')00 $12', 000 $GO:, 000 $1 ',09 000
Schemes
Asset misappropriation 1,639 $21,000 $100,000 $500,000 $1,199,000
Billing 306 $20,000 $100,000 $407,000 $842,000
Noncash 305 $10,000 $78,000 $500,000 $1,138,000
Expense reimbursements 193 $6,000 $33,000 $140,000 $202,000
Skimming 160 $10,000 $47,000 $133,000 $361,000
Cash on hand 154 $5,000 $26,000 $95,000 $1,204,000
Check and payment tampering 141 $40,000 $110,000 $500,000 $588,000
Cash larceny 106 $13,000 $83,000 $305,000 $1,000,000
Payroll 105 $16,000 $62,000 $238,000 $367,000
Register disbursements 27 $7,000 $20,000 $65,000 $85,000
Corruption 789 $34,000 $200,000 $1,100,000 $3,039,000
Financial statement fraud 186 $140,000 $954,000 $5,000,000 $8,693,000
Detection method
Tip 869 $30,000 $145,000 $750,000 $1,486,000
Internal audit 291 $14,000 $100,000 $350,000 $1,115,000
Management review 240 $26,000 $100,000 $570,000 $1,316,000
By accident 103 $50,000 $200,000 $600,000 $613,000
Account reconciliation 86 $17,000 $81,000 $325,000 $485,000
External audit 80 $39,000 $150,000 $972,000 $2,397,000
Document examination 71 $32,000 $101,000 $500,000 $1,357,000
Surveillance/monitoring 56 $10,000 $44,000 $300,000 $955,000
Notified by law enforcement 48 $197,000 $900,000 $9,750,000 $5,206,000
IT controls 33 $9,000 $80,000 $1,255,000 $1,133,000
Confession 23 $100,000 $225,000 $3,000,000 $3,826,000
'Mean amounts were calculated using loss data that was winsorized at 5% (i.e .• assigned all cases in the top 2.5% and bottom 2.5% the same value as
the 97.Sth percentile and 2.Sth percentile, respectively).
April 5, 2022 Item #11 Page 84 of 96
Statistic.ii Appendix Report to the Nations
Cases 25th percentile Median (50th) 75th percentile Mean•
Victim organization
Region:
United States and Canada 886 $22,000 $120,000 $563,000 $1,234,000
Sub-Saharan Africa 295 $15,000 $100,000 $568,000 $1,523,000
Asia-Pacific 197 $38,000 $195,000 $1,000,000 $1,988,000
Western Europe 124 $50,000 $139,000 $638,000 $2,113,000
Middle East and North Africa 124 $33,000 $100,000 $1,000,000 $1,302,000
Southern Asia 102 $28,000 $117,000 $713,000 $2,208,000
Latin America and the Caribbean 99 $50,000 $200,000 $1,000,000 $1,500,000
Eastern Europe and Western/Central Asia 94 $30,000 $133,000 $499,000 $1,603,000
Organization type:
Private company 883 $31,000 $150,000 $750,000 $1,451,000
Public company 529 $35,000 $150,000 $925,000 $1,675,000
Nonprofit 189 $12,000 $75,000 $300,000 $639,000
Government 327 $23,000 $100,000 $530,000 $1,812,000
National 141 $34,000 $200,000 $1,000,000 $2,652,000
State/provincial 66 $12,000 $91,000 $1,125,000 $2,693,000
Local 105 $18,000 $75,000 $253,000 $365,000
Organization size:
<100 employees 516 $31,000 $150,000 $697,000 $1,145,000
100-999 employees 452 $26,000 $120,000 $520,000 $1,580,000
1,000-9,999 employees 541 $24,000 $100,000 $513,000 $1,557,000
10,000+ employees 496 $32,000 $140,000 $800,000 $1,715,000
Organization revenue:
< USO 50 million 745 $28,000 $114,000 $500,000 $985,000
USO 50 million-USO 499 million 473 $20,000 $120,000 $684,000 $1,884,000
USO 500 million-USO 999 million 236 $21,000 $132,000 $608,000 $1,936,000
USO 1 billion+ 526 $35,000 $150,000 $1,000,000 $1,679,000
Industry:
Banking and financial services 379 $20,000 $100,000 $600,000 $1,546,000
Government and public administration 193 $18,000 $100,000 $500,000 $1,609,000
Manufacturing 181 $50,000 $198,000 $1,000,000 $1,579,000
Health care 147 $33,000 $200,000 $900,000 $1,508,000
Energy 91 $54,000 $275,000 $1,225,000 $2,337,000
Retail 89 $10,000 $85,000 $550,000 $1,112,000
Insurance 86 $12,000 $70,000 $410,000 $889,000
Education 81 $17,000 $65,000 $250,000 $354,000
Construction 77 $47,000 $200,000 $995,000 $1,872,000
Telecommunications 66 $71,000 $250,000 $2,000,000 $2,049,000
Technology 65 $39,000 $150,000 $1,000,000 $1,823,000
Transportation and warehousing 63 $32,000 $150,000 $1,000,000 $653,000
Food service and hospitality 58 $29,000 $114,000 $509,000 $771,000
Services (professional) 53 $46,000 $150,000 $700,000 $772,000
Real estate 52 $38,000 $254,000 $1,777,000 $1,988,000
Religious, charitable, or social services 43 $12,000 $76,000 $300,000 $919,000
Agriculture, forestry, fishing, and hunting 39 $29,000 $100,000 $1,000,000 $2,191,000
Arts, entertainment, and recreation 39 $30,000 $90,000 $255,000 $1,254,000
Services (other) 29 $7,000 $150,000 $1,400,000 $2,316,000
Mining 26 $100,000 $475,000 $3,100,000 $4,409,000
Wholesale trade 25 $20,000 $130,000 $454,000 $923,000
Utilities 20 $14,000 $163,000 $350,000 $1,271,000
Communications and publishing 14 $39,000 $115,000 $526,000 $673,000
April 5, 2022 Item #11 Page 85 of 96
Statistical Appendix Report to the Nations -
Cases 25th percentile Median (50th) 75th percentile Mean
Perpetrator
Number of perpetrators:
One perpetrator 954 $15,000 $90,000 $300,000 $666,000
Two perpetrators 358 $30,000 $105,000 $713,000 $1,115,000
Three or more perpetrators 641 $75,000 $350,000 $2,000,000 $2,953,000
Position:
Employee 803 $10,000 $60,000 $259,000 $545,000
Manager 688 $36,000 $150,000 $600,000 $1,247,000
Owner/executive 398 $111,000 $600,000 $3,485,000 $3,817,000
Tenure:
> 10 years 452 $50,000 $200,000 $1,000,000 $2,082,000
6-10 years 432 $50,000 $190,000 $1,000,000 $1,664,000
1-5 years 886 $20,000 $100,000 $500,000 $1,268,000
< 1 year 169 $10,000 $50,000 $295,000 $604,000
Department:
Operations 285 $12,000 $72,000 $410,000 $1,249,000
Accounting 273 $50,000 $200,000 $763,000 $1,109,000
Executive/upper management 230 $132,000 $596,000 $3,383,000 $3,787,000
Sales 222 $22,000 $94,000 $385,000 $807,000
Customer service 174 $15,000 $86,000 $250,000 $826,000
Administrative support 114 $10,000 $76,000 $259,000 $568,000
Finance 101 $19,000 $100,000 $682,000 $1,833,000
Purchasing 95 $39,000 $200,000 $1,000,000 $1,556,000
Information technology 66 $73,000 $200,000 $813,000 $1,204,000
Facilities and maintenance 59 $30,000 $100,000 $450,000 $390,000
Warehousing/inventory 58 $20,000 $85,000 $313,000 $453,000
Board of directors 45 $101,000 $750,000 $5,575,000 $5,205,000
Marketing/public relations 40 $20,000 $100,000 $363,000 $797,000
Manufacturing and production 34 $45,000 $275,000 $1,350,000 $1,486,000
Human resources 27 $15,000 $40,000 $400,000 $915,000
Legal 13 $10,000 $195,000 $741,000 $450,000
Research and development 12 $26,000 $350,000 $1,113,000 $1,795,000
Internal audit 8
'Loss calculations were omitted for categories with fewer than ten responses. -April 5, 2022
Statistical Appendix Report to the Nations
Item #11 Page 86 of 96
Cases 25th percentile Median (50th) 75th percentile Mean
Perpetrator (cont.)
Gender:
Male 1,391 $35,000 $150,000 $1,000,000 $1,823,000
Female 543 $18,000 $85,000 $300,000 $6n,ooo
Age:
<26 81 $5,000 $20,000 $113,000 $169,000
26-30 191 $15,000 $65,000 $250,000 $403,000
31-35 307 $18,000 $80,000 $400,000 $845,000
36-40 347 $31,000 $150,000 $600,000 $1,320,000
41-45 345 $38,000 $141,000 $750,000 $1,733,000
46-50 268 $56,000 $213,000 $1,200,000 $2,379,000
51-55 152 $50,000 $207,000 $1,000,000 $1,641,000
56-60 117 $78,000 $400,000 $2,284,000 $3,086,000
>60 60 $120,000 $575,000 $3,425,000 $3,644,000
Education level:
High school graduate or less 325 $15,000 $80,000 $312,000 $933,000
Some university 219 $30,000 $150,000 $451,000 $751,000
University degree 751 $40,000 $175,000 $1,000,000 $1,811,000
Postgraduate degree 238 $35,000 $200,000 $1,000,000 $2,285,000
April 5, 2022 Item #11 Page 87 of 96
Statistical Appendix Report to the Nations -
-
Age of Perpetrator
How does the perpetrator's age relate to occupational fraud?
Spotlight: Profile of a fraudster
Anti-Fraud Controls
45
46--47
How do anti-fraud controls vary by size of victim organization? 35
How does the presence of anti-fraud controls relate to median loss? 33
How does the presence of anti-fraud
controls relate to the duration of fraud? 34
How has the use of anti-fraud
controls changed over the last decade? 32
Spotlight Internal control weaknesses that contribute
to occupational fraud 36
Spotlight: Fraud in nonprofits 28-29
Spotlight Hotline and reporting mechanism effectiveness 21
What anti-fraud controls are most common in various regions? 63-77
What anti-fraud controls are most common? 31
Behavioral Red Flags of Perpetrator
Do fraud perpetrators also engage in non-fraud-related misconduct? 51
Do fraud perpetrators experience negative
HR-related issues prior to or during their frauds? 51
How often do perpetrators exhibit behavioral red flags? 50 --------Sp o ti i g ht: Behavioral Red Flags of Fraud 52-53
Case Results
How do victim organizations punish fraud perpetrators? 54 ----------How does the recovery of fraud losses vary by region? 57 ---------How does the type of scheme relate to fines
incurred by victim organizations? 57
Spotlight: Response to fraud 55
Why do organizations decline to refer cases to law enforcement? 56
Cost of Fraud
How do gender distribution and median loss vary
based on the perpetrator's level of authority? 44 ---------How does the perpetrator's age relate to occupational fraud? 45
How does an organization's gross annual revenue relate
to its occupational fraud risk? 25
How does an organization's size relate to its occupational fraud risk? 25
How does detection method relate to fraud loss and duration? 20
How does occupational fraud affect organizations in different industries? 27
April 5, 2022
Index of Figures Report to the Nations
How does the duration of a fraud relate to median loss? 14 ---------How does the number of perpetrators in a scheme
relate to occupational fraud? 48
How does the perpetrator's education level relate to occupational fraud? 46
How does the perpetrator's gender relate to occupational fraud? 43
How does the perpetrator's level of authority relate
to occupational fraud in various regions? 6'J-77
How does the perpetrator's tenure relate to median
loss at different levels of authority? 40
How does the perpetrator's tenure relate to occupational fraud? 39
How does the presence of anti-fraud controls relate to median loss? 33
How is occupational fraud committed? 10
Spotlight Fraud in nonprofits 28-29
Spotlight Hotline and reporting mechanism effectiveness 21
Spotlight Profile of a fraudster 46--47
Spotlight: The global cost of fraud 8-9
What asset misappropriation schemes present the greatest risk? 13
What departments pose the greatest risk for occupational fraud? 41
What is the typical velocity (median loss per month) of
different occupational fraud schemes?
What levels of government are victimized by occupational fraud?
What types of organizations are victimized by occupational fraud?
Concealment of Fraud Schemes
Spotlight: How occupational fraud is concealed
Criminal and Employment Background
of Perpetrator
Do perpetrators tend to have prior employment-related
16
24
24
17
disciplinary actions for fraud? 49
Do perpetrators tend to have prior fraud convictions? 48 ---------Sp o ti i g ht: Behavioral red flags of fraud 52-53
Was a background check run on the perpetrator prior to hiring? 37
What types of background checks were run on the
perpetrator prior to hiring? 37
Demographics of Survey Participants
How many fraud cases have survey participants
investigated in the past two years? 61
How much fraud examination experience did survey participants have? 61
What was the primary occupation of survey participants? 60
What was the professional role of the survey participants? 61
Item #11 Page 88 of 96
Department of Perpetrator
What are the most common occupational
fraud schemes in high-risk departments? 42
What departments pose the greatest risk for occupational fraud? 41
Spotlight Profile of a fraudster 46-47
Detection Method
How does detection method relate to fraud duration and loss? 20
How is occupational fraud initially detected? 19 ---------To whom did whistleblowers initially report? 23 ---------What formal reporting mechanisms did whistleblowers use? 22
Who reports occupational fraud? 19
Spotlight: Fraud in nonprofits 28-29
Spotlight: Hotline and reporting mechanism effectiveness 21 ----------
Duration of Fraud
How does detection method relate to fraud loss and duration? 20
How does the duration of a fraud relate to median loss? 14
How does the perpetrator's level of authority relate to scheme duration? 39
How does the presence of anti-fraud controls
relate to the duration of fraud? 34
How long do different occupational fraud schemes last? 15
Education Level of Perpetrator
How does the perpetrator's education level relate to occupational fraud? 46
Spotlight: Profile of a fraudster 46-47
Gender of Perpetrator
How does gender distribution and median loss
vary based on the perpetrator's level of authority? 44 ----------How does the gender distribution of perpetrators vary by region? 43
How does the perpetrator's gender relate to occupational fraud? 43
Spotlight: Profile of a fraudster 46-47
Geographical Region of Victim Organization
How does the gender distribution of perpetrators vary by region?
How does the recovery of fraud losses vary by region?
43
57 ----------Regional focus (most common schemes, detection, anti-fraud
controls, perpetrator's level of authority, and cases by country)
Asia-Pacific
62-77
62-63
Eastern Europe and Western/Central Asia 64-65 ---------Latin America and the Caribbean 66-67
Middle East and North Africa 68-69
Southern Asia 70-71
Sub-Saharan Africa 72-73
United States and Canada 74-75
Western Europe 76-77
Reported cases by region 7
Spotlight: The global cost of fraud 8-9
Industry of Victim Organization
How does occupational fraud affect
organizations in different Industries?
Spotlight: Fraud in nonprofits
What are the most common occupational
fr~~W)e~~51l:J'1~us industries?
27
28-29
30
Number of Perpetrators
How does the number of perpetrators in a
scheme relate to occupational fraud?
Spotlight: Internal control weaknesses that contribute
to occupational fraud
Position of Perpetrator
How does gender distribution and median loss
vary based on the perpetrator's level of authority?
48
36
44 ---------How does the perpetrator's level of authority relate to
occupational fraud? 38
Based on region 63-77
How does the perpetrator's level of authority relate to
scheme duration? 39
How does the perpetrator's tenure relate
to median loss at different levels of authority? 40 ----------Spotlight: Internal control weaknesses that contribute
to occupational fraud
Spotlight: Fraud in nonprofits
Spotlight: Profile of a fraudster
Scheme Type
36
28-29
46-47
How do fraud schemes vary by organization size? 26 --------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: Fraud in nonprofits
What are the most common occupational
fraud schemes in high-risk departments?
What are the most common occupational fraud
schemes in various industries?
What asset misappropriation schemes present the greatest risk?
What Is the typical velocity (median loss per month)
of different occupational fraud schemes?
Size of Victim Organization
How do anti-fraud controls vary by size of victim organization
How do fraud schemes vary by organization size?
28-29
42
30
13
16
35
26 ---------How does an organization's gross annual revenue relate
to its occupational fraud risk?
How does an organization's size relate to its occupational fraud risk?
Spotlight: Control weaknesses that contribute to occupational fraud
Spotlight: Hotline and reporting mechanism effectiveness
Tenure of Perpetrator
How does the perpetrator's tenure relate to
median loss at different levels of authority?
How does the perpetrator's tenure relate to occupational fraud?
Spotlight: Profile of a fraudster
Type of Victim Organization
What levels of government are victimized by occupational fraud?
What types of organizations are victimized by occupational fraud?
25
25
36
21
40
39
46-47
24
24
Item #11 Page 89 of 96
Index of Figures Report to the Nations -
-
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 3. To increase employees' perception of detec-
employees of the organization? tion, are the following proactive measures
□ Do employees understand what constitutes taken and publicized to employees?
fraud? □ Is possible fraudulent conduct aggressively
□ Have the costs of fraud to the company and sought out, rather than dealt with passively?
everyone in it-including lost profits, adverse □ Are surprise fraud audits performed in
publicity, potential job loss, and decreased addition to regularly scheduled audits?
morale and productivity-been made clear to □ Are data analytics techniques used to pro-all employees? actively search for fraud and, if so, has the
D Do employees know where to seek advice use of such techniques been made known
when faced with uncertain ethical decisions, throughout the organization?
and do they believe that they can speak freely? D Do managers actively review the controls,
D Has a policy of zero-tolerance for fraud been processes, accounts, or transactions under
communicated to employees through words their purview for adherence to company
and actions? policies and expectations?
2. Is an effective fraud reporting mechanism in 4. Is the management climate/tone at the top one
place? of honesty and integrity?
D Have employees been taught how to com-D Are employees periodically surveyed to
municate concerns about known or potential determine the extent to which they believe
wrongdoing? management acts with honesty and integrity?
D Are one or more reporting channels (e.g., a D Are performance goals realistic and clearly
third-party hotline, dedicated email inbox, or communicated?
web-based form) available to employees? □ Have fraud prevention goals been incorpo-
□ Do employees trust that they can report sus-rated into the performance measures that are
picious activity anonymously and/or confiden-used to evaluate managers and to determine
tially (where legally permissible) and without performance-related compensation?
fear of reprisal? D Has the organization established, implemented,
D Has it been made clear to employees that and tested a process for oversight of fraud risks
reports of suspicious activity will be promptly by the board of directors or others charged with
and thoroughly evaluated? governance (e.g., the audit committee)?
D Do reporting policies and mechanisms extend
to vendors, customers, and other outside
parties?
April 5, 2022 Item #11 Page 90 of 96
Fraud Prevention Checklist Reporl to the Nations
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
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
April 5, 2022
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?
Item #11 Page 91 of 96
Fraud Prevention Checklist Report to the Nations -
-
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 their 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 scheme: A fraudulent dis-
bursement scheme in which a person steals their employ-
er's funds by intercepting, forging, or altering a check or
electronic payment drawn on one of the organization's bank
accounts (e.g., employee steals blank company checks and
makes them out to themself or an accomplice; employee
re-routes an outgoing electronic payment to a vendor to be
deposited into their own bank account)
Corruption: A scheme in which an employee misuses their
influence in a business transaction in a way that violates
their duty to the employer in order to gain a direct or indi-
rect benefit (e.g., schemes involving bribery or conflicts of
interest)
Employee support programs: Programs that provide
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)
April 5, 2022
Glossary of Terminology Report to the Nations
Financial statement fraud: A scheme in which an employee
intentionally causes a misstatement or omission of mate-
rial information in the organization's financial reports (e.g.,
recording 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. This
might include, in addition to telephone hotlines, web-based
platforms and other mechanisms established to facilitate
fraud reporting.
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 their 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)
Item #11 Page 92 of 96
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
more than 85,000 members, the ACFE is reducing business fraud worldwide and providing 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 critica l 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 I Austin, TX 78701-2727 I USA
Phone: (800) 245-3321 / +1 (512) 478-9000
ACFE.com I info@ACFE.com
TERMS OF USE:
The Report to the Nations is available for use free of charge as a public service of the ACFE. You may download, copy and/or dis-
tribute the Report to the Notions for personal or business use on the following conditions:
1. No portion of the Report to the Nations may be sold or otherwise licensed, shared or transferred to any party for a fee, or
included in any work that is to be sold, licensed, shared or transferred to any party for a fee, without the express written
consent of the ACFE. The foregoing notwithstanding, you are permitted to use the Report to the Nations as part of a speech or
presentation for which an admission fee is charged.
2. The Report to the Nations must be properly attributed to the ACFE, including the name of the publication. An example of
proper attribution is: "2020 Report to the Notions. Copyright 2020 by the Association of Certified Fraud Examiners, Inc."
April 5, 2022 Item #11 Page 93 of 96
About the ACFE Report to the Nations -
State of California
GOVERNMENT CODE
Section 53087 .6
Exhibit 3
53087.6. (a) (1) A city, county, or city and county auditor or controller who is
elected to office may maintain a whistleblower hotline to receive calls from persons
who have information regarding fraud, waste, or abuse by local government employees.
(2) A city, county, or city and county auditor or controller who is appointed by,
or is an employee of, a legislative body or the government agency that is governed
by the city, county, or city and county, shall obtain approval of that legislative body
or the government agency, as the case may be, prior to establishing the whistleblower
hotline.
(b) The auditor or controller may refer calls received on the whistleblower hotline
to the appropriate government authority for review and possible investigation.
(c) During the initial review of a call received pursuant to subdivision (a), the
auditor or controller, or other appropriate governmental agency, shall hold in
confidence information disclosed through the whistleblower hotline, including the
identity of the caller disclosing the information and the parties identified by the caller.
(d) A call made 'to the whistleblower hotline pursuant to subdivision (a), or its
referral to an appropriate agency under subdivision (b ), may not be the sole basis for
a time period under a statute of limitation to commence. This section does not change
existing law relating to statutes of limitation.
( e) (I) Upon receiving specific information that an employee or local government
has engaged in an improper government activity, as defined by paragraph (2) of
subdivision (f), a city or county auditor or controller may conduct an investigative
audit of the matter. The identity of the person providing the information that initiated
the investigative audit shall not be disclosed without the written permission of that
person, unless the disclosure is to a law enforcement agency that is conducting a
criminal investigation. If the specific information is in regard to improper government
activity that occurred under the jurisdiction of another city, county, or city and county,
the information shall be forwarded to the appropriate auditor or controller for that
city, county, or city and county.
(2) Any investigative audit conducted pursuant to this subdivision shall be kept
confidential, except to issue any report of an investigation that has been substantiated,
or to release any findings resulting from a completed investigation that are deemed
necessary to serve the interests of the public. In any event, the identity of the individual
or individuals reporting the improper government activity, and the subject employee
or employees shall be kept confidential.
(3) Notwithstanding paragraph (2), the auditor or controller may provide a copy
of a substantiated audit report that includes the identities of the subject employee or
April 5, 2022 Item #11 Page 95 of 96
employees and other pertinent information concerning the investigation to the
appropriate appointing authority for disciplinary purposes. The substantiated audit
report, any subsequent investigatory materials or information, and the disposition of
any resulting disciplinary proceedings are subject to the confidentiality provisions of
applicable local, state, and federal statutes, rules, and regulations.
( f) ( 1) For purposes of this section, "employee" means any individual employed
by any county, city, or city and county, including any charter city or county, and any
school district, community college district, municipal or public corporation, or political
subdivision that falls under the auditor's or controller's jurisdiction.
(2) For purposes of this section, "fraud, waste, or abuse" means any activity by a
local agency or employee that is undertaken in the performance of the employee's
official duties, including activities deemed to be outside the scope of his or her
employment, that is in violation of any local, state, or federal law or regulation relating
to corruption, malfeasance, bribery, theft of government property, fraudulent claims,
fraud, coercion, conversion, malicious prosecution, misuse of government property,
or willful omission to perform duty, is economically wasteful, or involves gross
misconduct.
(Amended by Stats. 20 I 0, Ch. 80, Sec. I. (AB 1666) Effective January I, 2011.)
April 5, 2022 Item #11 Page 96 of 96