What’s the scope of the internal fraud and embezzlement problem?

According to a global survey of fraud experts conducted by the Association of Certified Fraud Examiners (ACFE):

• Organizations lose (on average) an estimated 5 percent of their annual revenues to fraud.
• Losses of at least $1 million resulted in more than one fifth of these fraud cases.
• Small organizations — which typically employ fewer anti-fraud controls — suffer the largest median losses ($140,000).
• Nearly half of these fraud victims do not recover any of the perpetrator’s takings.

ACFE data are drawn from a study of occupational fraud cases investigated by Certified Fraud Examiners (CFEs). Since 2002 ACFE has created these reports on a biennial schedule — and the documents produced in 2010 also ushered in their inclusion of international data. As a result, the organization’s perspective is drawn from a consistent stream of fraud-related data going back for more than a decade.

How can legal professionals help protect against fraud?

ACFE surveys show that most of the occupational fraudsters reported had otherwise clean employment histories — making their crimes difficult to anticipate. (Difficult … but not necessarily impossible. As it happens, 81% of the case studies analyzed showed that perpetrators displayed telltale behaviors that could have served as early warning indicators. Are your colleagues — or clients — mindful of these examples of behavioral “red flags”?)*

If fraud awareness isn’t yet a topic of conversation in your organization, it’s likely to become one in the near future. Meanwhile, perhaps there’s an opportunity for you to help your colleagues appreciate the risks and protect against fraud-related dangers.

(Might fraud awareness be an appropriate subject for a “lunch and learn” presentation at your company? Fraud-awareness education also presents a natural reason for you to be in touch with clients, professional organizations or community groups. And don’t forget your newsletters, blogposts and social media updates — all worthwhile forums for reminding people to protect themselves against potential fraudsters.)

Fraud-Awareness Resources

Want to learn more about fraud — and what can be done to combat it? These resources can provide useful raw materials for presentations, posts or other educational communications from you.

The ACFE website is a natural place to start. Case studies, tips, but, online self-study and other educational materials are available here. Worth watching: “Key Points for Working with Prosecutors” — a video that offers useful advice for effectively engaging law enforcement officials when you’ve uncovered a fraud. (The presenter here is Meric Bloch, J.D., CFE, PCI, CCEP, VP-Compliance and Special Investigations, Adecco SA.)

If your client base includes small businesses or not-for-profit organizations, another resource to consider is Fraud Hotline, LLC — a national provider of anonymous and confidential services for reporting fraud.

Forensic Strategic Solutions Blog explores issues centering on financial fraud.

The Thompson-Reuters website includes white papers on insurance fraud, healthcare fraud, money laundering and other forms of fraud.

Note: Numerous organizations have been posting about International Fraud Awareness Week on Twitter. Check out the hashtag #FraudWeek.

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*“In 81% of cases, the fraudster displayed one or more behavioral red flags that are often associated with fraudulent conduct. Living beyond means (36% of cases), financial difficulties (27%), unusually close association with vendors or customers (19%) and excessive control issues (18%) were the most commonly observed behavioral warning signs.” (ACFE website)