Amanda Bernard, CPA, CFE, CMA, Principal
The ACFE’s 2018 Report to the Nations demonstrates a significant link between the duration of a fraud and the magnitude of the losses incurred by the victim organization. Fraud schemes that lasted over 60 months were more than 20 times as expensive as those caught within six months.
Some of the specific fraud methods are more likely to be caught quickly. For example, schemes involving theft of cash on hand or from a retail cash register lasted an average of 12 months, compared to payroll schemes which continued for an average of 30 months before being identified. The median duration for all fraud cases in the study was 16 months.
Fraud, by nature, usually requires concealment to last for more than a short period of time. Concealment was present in 97% of the fraud cases studied, and the remaining 3% of cases did not require concealment because the fraud was committed by an owner or executive. Understanding the concealment methods used by fraud perpetrators to cover their crimes helps us to design better systems to prevent and detect fraud quickly.
Multiple methods of concealment are often used simultaneously. The most likely concealment methods include creating (55%) or altering (48%) physical documents, followed by creating (42%) or altering (34%) transactions in the accounting system. Interestingly, electronic documents or files were the only category that was less likely to be created (29%) compared to altered (31%). Other common methods include destruction of documents and creating fraudulent journal entries.
Fraudsters like to start off small, and then rapidly grow the fraud over the first few years, making it extremely important for organizations to implement preventative measures to detect fraud quickly and minimize the magnitude of the loss. If you are interested in receiving a fraud prevention checklist or speaking with a certified fraud examiner, contact me at email@example.com.