Surprising Facts About Fraud Detection

Earlier this year, the Association of Certified Fraud Examiners (ACFE) issued Occupational Fraud 2024: A Report to the Nations. Issued biennially, the ACFE studied 1,921 fraud cases investigated by its members and draws its conclusions on fraud in the workplace. 

Some of its findings may surprise you. 

These are the top six types of detection in the current report: 

1. Tips  43% 
2. Internal audit  14% 
3. Management review 13% 
4. Document examination    6% 
5. Account reconciliation    5% 
6. By accident    5% 

Detection by tips, or whistleblowers, consistently is the number one detection method. The ACFE indicated that over half of tips from come from employees, and nearly one-third come from customers and vendors. 

Over 53% of whistleblowers reported fraud through a formal reporting mechanism. Hotlines are often used along with a web-based form. Other reporting mechanisms include email and mailed letters or forms. 

Perhaps surprisingly, 29% of employees that report fraud informally to individuals with the organization report it to their direct supervisor. One might expect them to report it higher up to a higher-level executive or to human resources. 

Surprisingly, the top six detection types do not lead to the largest fraud costs. However, it?s some of the less likely sources that detect the costliest frauds: 

 
This is not the first time external auditors have been in the bottom half list of detection methods. Much of that has to do with our responsibilities in an audit. We are required to approach the audit with professional skepticism, meaning we must remain alert to the possibility of fraud throughout the audit. However, this doesn't mean we are required to actively search for fraud in every case, but we must be mindful that fraud could exist and plan our audit accordingly. 

When we encounter something we think might be fraud, team members with more experience are brought in to assess the situation. We will generally extend testing and obtain additional evidence. We are responsible for reporting the fraud finding to the appropriate level of management or governance (such as the board of directors or an audit committee). In some cases, we may be required to report fraud to external authorities (such as regulators or law enforcement) depending on the severity and materiality of the fraud. 

The Report to the Nations is a great resource to educate yourself and your organization on the different types of occupational fraud. Pease Bell can help you improve your controls to reduce your fraud risk.