Survey participants estimated that the typical organization loses 5% of its revenues to fraud each year. Applied to the estimated 2011 Gross World Product, this figure translates to a potential projected global fraud loss of more than $3.5 trillion. The median loss caused by the occupational fraud cases in our study was $140,000. More than one-fifth of these cases caused losses of at least $1 million.
Employees committing fraud typically are first-time offenders with clean employment histories, yet they usually display one or more behavioral red flags that could be used to detect and stop their crimes, according to a new report on global fraud.
The frauds reported to us lasted a median of 18 months before being detected and were more likely to be detected by a tip from a fellow employee rather than by any other method.
The report found that the banking and financial services industry was most commonly victimized. More than three-fourths of reported fraud was committed by individuals working in six departments: accounting, operations, sales, executive/upper management, customer service and purchasing.
With nearly half of victim organizations unable to recover their losses, proactive measures to prevent fraud are critical. Management should continually assess the organization’s specific fraud risks and evaluate its fraud prevention programs in light of those risks. A checklist such as the one on page 69 can help organizations effectively prevent fraud before it occurs.