What is your Fraud IQ?
Aug 09, 2011
Occupational Fraud has become more and more prevalent in today’s business environment. Whether it is a result of the economic times or because it is more widely publicized, the fact remains that most people who have spent some years in a business atmosphere will probably have a story or two related to the topic. History has shown that fraud can bring down massive companies (i.e. financial reporting fraud of Enron) as well as the small business owner. So as a business owner or executive of your company, what is your Fraud IQ?
Every 2 years, the ACFE (Association of Certified Fraud Examiners) prepares a report of Occupational Fraud. The test below is based upon results from their 2010 report which was supported by 1,843 investigated cases in 2008 & 2009.
1. It is estimated that the typical organization loses what % of its revenues to fraud each year?
a. 1%
b. 3%
c. 5%
d. 10%
2. In the US, the median duration of fraud cases detected was
a. 3 months
b. 6 months
c. 12 months
d. 18 months
3. Fraud was detected most frequently by the following method
a. Account reconciliation.
b. Tip.
c. Audit from external CPA firm.
d. Surveillance/monitoring.
4. Small businesses tend to suffer disproportionately high fraud losses. In the 2010 study, 31% of all frauds were against small business (less than 100 employees). The median loss to these businesses was
a. $23,000
b. $77,000
c. $112,000
d. $155,000
5. Fraud was found most prevalent in the following type of organization
a. Private Company
b. Public Company
c. Government
d. Not-for-Profit
While this short test was to get you thinking about fraud, it is just the beginning. For more information and a complete copy of the report, go to the ACFE 2010 Fraud Report. If you feel you might be a victim or would like to be more proactive to avoid being a victim, please contact me for further discussions on programs that will work in your environment.
Answers:
1. c. - Based upon the respondents in the 2010 report, the median answer was 5%. Since 40% of the reported cases came from outside the US, it has truly become a global problem. Applying this loss % to the Gross World Product in 2009 of $58.07 trillion, this would result in global fraud losses of $2.9 trillion. More importantly, this loss falls directly to the bottom line profit/losses of the business.
2. d. – While financial statement fraud lasted the longest with 27 months, it was closely followed by check tampering, expense reimbursements, payroll and billing fraud all lasting 24 months.
3. b. – While all of the above are important in developing a strong anti-fraud atmosphere, by far, the method of detection that uncovered the fraud in the 2010 report was tips at 40%. Of those tips, nearly half came from employees. Accounts reconciliation was 6%, external CPA audits were 4.6% and surveillance & monitoring were close to the bottom at 2.6%
4. d. – The median loss to small businesses was $155,000. Since small businesses typically don’t have the anti-fraud controls in place, they are very susceptible.
5. a. – Private companies were identified to be the most frequent victim at 42%. Public companies followed at 32%; Government at 16% and Not-for-Profits at 10%
