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3 minute read

Occupational fraud in 2020: What finance pros must know

Alyssa Pedrick
by Alyssa Pedrick
November 19, 2020
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With occupational fraud running rampant in the business world, CFOs and their finance departments must be on guard at all times.

Fortunately, the Association of Certified Fraud Examiners (ACFE) has released its 2020 Report to the Nations with new insight on workplace fraud.

The report takes a look at the criminals themselves: What schemes are most common? What behaviors do fraudsters exhibit? It also details how companies are responding: What internal controls do they have in place? What training and reporting tactics are most effective?

Check out some key details from ACFE’s report to help Finance stay vigilant and fine-tune preventive measures now.

1. Fraud methods

First, Finance must know what common tactics criminals are using – and what those tactics are costing your company.

ACFE found asset misappropriation schemes, like billing scams and check or payment tampering, are the most common and least costly schemes. They accounted for 86% of cases and had a median loss of $100K. Financial statement fraud schemes were the least common and most costly schemes. They made up 10% of cases and had a median loss of $954K.

Noting the difference in these top methods’ frequency and losses, it’s vital for companies to develop unique approaches for different types of occupational fraud. For example, common occurrences like billing schemes should be checked for constantly. And costly occurrences like misstatement schemes should be monitored with separation of duties, checks and balances, etc.

2. Criminal behaviors

Though each criminal is unique, they often share certain behaviors. In fact, 85% of fraudsters displayed at least one “behavioral red flag,” says ACFE. The top red flags of occupational fraud were:

  • living beyond their means (42%)
  • financial difficulties (26%)
  • unusually close association with vendor/customer (19%), and
  • control issues or unwillingness to share duties (15%).

Essentially, these are behaviors to look out for at your company – both in employees’ words and actions – and address if necessary.

3. Internal controls

CFOs know anti-fraud controls are critical. ACFE’s report reinforced they lead to lower monetary losses and quicker fraud detection. Meanwhile, a lack of internal controls contributed to about a third of fraud cases.

Some of the most common and effective controls included financial statement audits, a code of conduct, a hotline, an audit committee, an anti-fraud policy and fraud training. And some lesser known approaches ACFE identified were surprise audits, mandatory time off, job rotation and whistleblower rewards.

Overall, the higher emphasis your finance team puts on controls, the better. That sends a clear message to employees about how you view occupational fraud, too.

4. Training and reporting

Another takeaway from the report: Providing fraud training and reporting outlets makes a big difference. Companies that trained employees were more likely to detect fraud via tip and more likely to gather tips through reporting mechanisms.

The most common reporting mechanisms were phone hotline, email, online form or paper form. Hotlines, though, have proved especially valuable: Companies with hotlines cut their median losses in half ($100K versus $198K) and detected fraud occurrences much sooner (12 months versus 18 months). So, if you’re ready to step up occupational fraud prevention, additional training and a hotline are a good place to start.

Alyssa Pedrick
Alyssa Pedrick
Alyssa, a member of the Resourceful Finance Pro staff, has written extensively on business and finance for several years. She has produced content for accounts payable professionals and finance executives and has developed whitepapers and infographics for the finance and accounting industry.

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Resourceful Finance Pro, part of the SuccessFuel Network, provides the latest Finance and employment law news for Finance professionals in the trenches of small-to-medium-sized businesses. Rather than simply regurgitating the day's headlines, Resourceful Finance Pro delivers actionable insights, helping Finance execs understand what Finance trends mean to their business.

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