An average organisation loses 5% of its revenue annually to fraud, as today's corporate culture and technology make it much more conducive to commit fraud.
So said Jaco de Jager, CEO of the Association of Certified Fraud Examiners (ACFE) - SA Chapter, speaking during the ITWeb IDentity Indaba, in Bryanston, yesterday.
According to De Jager, applying this percentage to the 2010 estimated Gross World Product of $58.07 trillion would result in a projected total global fraud loss of more than $3.4 trillion (R29 trillion).
Previous ACFE research has identified three primary categories of occupational fraud used by individuals to defraud their employers, he revealed.
The first category is “asset misappropriations”, which he defined as those schemes in which the perpetrator steals or misuses an organisation's resources. This includes skimming cash receipts, falsifying expense reports and forging company cheques.
According to De Jager, the second category is “financial statement fraud”, which involves the intentional misstatement or omission of material information in the organisation's financial reports.
“This includes the recording of fictitious revenues, concealing liabilities or expenses, and artificially inflating reported assets.”
The third category is “corruption”schemes, which involve the employee's use of his or her influence in business transactions in a way that violates his or her duty to the employer for the purpose of obtaining a benefit for him or herself or someone else. This includes bribery, extortion and conflict of interest.
De Jager also revealed that fraudsters are generally first-time offenders, with only 7% having prior convictions and only 12% having their employment terminated.
Among the common trends is that 39% of fraudsters are usually found to be living beyond their means, 34% experience financial difficulties; and the remainder are facing pressure to perform.
In a recent ACFE study, De Jager added, more than half (55.4%) of respondents said the level of fraud in their companies has increased significantly in the past 12 months. In addition, 49% observed an increase in the amount lost to fraud during the same period.
Some 37% say fraud by unrelated third parties has increased, and roughly 20% indicate that fraud by vendors, financial statement fraud and corruption have increased.
“Layoffs are leaving holes in organisations' internal control systems. Nearly 60% of the organisations reported that their companies had experienced layoffs during the past year. Among those who had experienced layoffs, almost 35% said their company had eliminated some controls. By retrenching employees, segregation of duties has been affected.”
De Jager also believes that fraud levels will continue rising, saying almost 90% of respondents expect fraud to continue to increase in the next 12 months.
He also pointed out that almost one-third of all respondents did not perform fraud risk assessments in the past 12 months; 68% made no change to the frequency of conducting fraud risk assessments in the past 12 months compared to the prior 12 months; and 16% of organisations did not amend fraud prevention processes and controls to reflect changing fraud threat levels.
The association also saw increases in fraud in countries such as Botswana and Namibia, which traditionally had low levels of fraud and crime syndicate activity.
“Business culture today reveres wealth and fame, thereby creating a constant and single-minded push at all levels for consistently higher and increasingly generous pay and greater public adulation,” De Jager noted.
He is of the view that cultural controls promote the ethical environment and embolden employees to stop fraud.
“A strong ethical environment encourages self-policing, thereby enhancing oversight far beyond what internal control methods alone provide. Top management should use its companywide ethics policy to set a strong and consistent anti-fraud message at the top that defines enforcement procedures and consequences of fraudulent behaviour.
In conclusion, he noted that safe whistle-blowing channels must be administered for people to report questionable behaviour, and employees should be rewarded for standing up for what is right.
Share