“Organizations with hotlines were much more likely to catch fraud by a tip, which our data shows is the most effective way to detect fraud. These organizations also experienced frauds that were 41% less costly, and they detected frauds 50% more quickly.” (ACFE, 2014a)

The Association of Certified Fraud Examiners (ACFE) just released its seventh Report to the Nations on Occupational Fraud and Abuse based on a global study of occupational fraud. Study results show that typical organizations lose five percent of revenues each year to fraud, with twenty-two percent of cases involving losses of at least $1 million. The overall median loss was $145,000.

Small businesses, according to the study, suffer disproportionately large losses from occupational fraud.  Those small businesses in the banking and financial services or manufacturing industries, or small agencies in the government and public administration sector, may be most at risk; organizations in those industries, regardless of size, reported the greatest number of occupational fraud cases to ACFE researchers.

Organizations are more likely to detect occupational fraud cases from tips than by any other single detection method and, as noted above, organizations with effective hotlines in place will detect fraud more quickly, in general. However, according to the study, only 54 percent of organizations that reported being victimized by occupational fraud had a hotline mechanism in place, and less than 11 percent provided rewards for whistleblowers. If your organization falls into the ranks of the 46 percent without a hotline, it may be time to reconsider the matter.

In addition to hotlines, the ACFE study highlights additional proactive detection measures – management review procedures, internal audits, and employee monitoring mechanisms. It also mentions such anti-fraud controls as proactive data monitoring and analysis, surprise audits, a dedicated fraud department or team, and formal fraud risk assessments.

A related ACFE press release addresses five of the top lessons business leaders should take away from the recent occupational fraud study. (ACFE, 2014b)

1. Implement a fraud hotline.
2. Be aware of red flag behaviors.
3. Don’t depend solely on external audits.
4. Small business owner? Be vigilant.
5. Focus on prevention, not recovery.

Both the report and the ACFE press release provide many additional details and are well worth reading; we have provided links below.

Ethical Advocate has touched on the return on investment (ROI) of well-managed, well-publicized hotlines before. Are you interested in introducing a hotline process for your organization? Contact us for more information.

References:

ACFE, Report to the Nations on Occupational Fraud and Abuse: 2014 Global Fraud Study, 2014a. ACFE.com/RTTN

ACFE, “Five Lessons for Business Leaders from the Latest Fraud Statistics,” ACFE press release, June 3, 2014 (2014b). http://www.acfe.com/press-release.aspx?id=4294983117