Employees across the world defrauded their employers of more than $4.7 trillion each year from 2020 to 2022, according to a new report from the Association of Certified Fraud Examiners.
The ACFE’s
“This is bigger than healthcare fraud, tax evasion, money laundering and identity theft,” said John Warren, vice president and general counsel of the ACFE, who co-authored the report.
The COVID-19 pandemic affected half of all reported occupational fraud cases, giving employees more opportunities to commit fraud and providing organizations new ways to detect it. The report found that 8% of all cases involved cryptocurrency, which was used for bribery and kickback payments or to convert misappropriated assets.
The ACFE’s biannual Report to the Nations, which has been published since 2002 and is now in its 12th edition, for the first time examined fraud trends over the past 10 years. Between 2012 and 2022, fraud cases were caught faster, leading to smaller losses. Organizations with hotlines detect fraud more quickly and have lower losses than organizations without hotlines.
Criminal prosecutions of fraud cases went down, while civil cases were up. More fraudsters were higher up on the organizational ladder and the gap between male and female fraudsters shrank — with women catching up with men in terms of how much they steal. However, 40% of organizations recovered nothing from their fraud losses.
The ACFE recommended that the best way to stop and reduce fraud continued to be for employers to have hotlines or other ways for employees to report fraud. They also should be trained in what to look for, such as employees living beyond their means, with fast cars, jewelry and fancy vacations, and how to report their suspicions.
Irritability, bullying and secretiveness can also be red flags of fraud. “Look at behavioral characteristics,” Warren said in a statement. “People think of these as numbers crimes, but they’re people crimes. People are showing you clues of what they’re doing. If somebody robs a bank, they’re never going back to the bank again. If a manager embezzles from a bank, they’re going back there every day. The stress is incredible. They’re irritable, bullying, not sharing work, living lifestyles that they shouldn’t be able to afford. Humans are really bad at ascribing bad intentions to people they like. We want people to make that connection more quickly. Employees have to know what they’re looking for and need a way to report it. If employees have been trained on what fraud looks like and know how to make a confidential report, they can call the company and the company can act on it.”
Asset misappropriation involving an employee stealing or misusing the employer’s resources was the most common scheme, with 86% of cases in this category. These schemes tended to cause the lowest median loss at $100,000 per case. In contrast, financial statement fraud schemes, in which the perpetrator intentionally causes a material misstatement or omission in the organization’s financial statements, are the least common schemes (9%), but also the costliest, at $593,000. The third category, corruption — including bribery, conflicts of interest, and extortion — fell in the middle in terms of both frequency and losses. Those schemes happen in 50% of cases and cause a median loss of $150,000.
