The 2018 Association of Certified Fraud Examiners’ Report to the Nations provides a detailed breakdown of occupational fraud from 125 countries. Occupational fraud is defined as the use of one’s occupation for personal enrichment through the deliberate misuse or misapplication of the employing organisation’s resources or assets.
The Report identified the most common behavioural indicators of occupational fraud as being (i) living beyond means, (ii) financial difficulties, (iii) unusually close association with a vendor or customer, (iv) excessive control issues or unwillingness to share duties, (v) recent divorce or family problems, and (vi) a general “wheeler-dealer” attitude involving shrewd or unscrupulous behaviour. The Report explains that these six behavioural red flags have been the most common in every one of its studies dating back to 2008.
The Report also explains that the most common detection method of fraud comes from tips and that 53% of all tips were provided by employees of the victim organizations. 32% of the tips that led to fraud detection came from people outside of the organisation including from customers, vendors and competitors. The Report suggests that organisations should consider promoting reporting mechanisms not only to their employees but also customers and vendors.
Mehmet Karagoz, a Managing Associate in the Fraud Defence team at Mishcon de Reya and a Certified Fraud Examiner says:
“The latest ACFE Report to the Nations demonstrates once again the importance of organisations of all sizes undertaking risk assessments and implementing effective prevention, detection and response policies. Fraud is an ongoing risk for all organisations, and directors are under an obligation to ensure they have considered and attempted to deal with the internal and external fraud threats to their organisation. It is not enough for organisations to simply rely on their code of conduct. They must take pro-active steps and communicate their anti-fraud policies to their employees, ensuring they deliver training to employees to assist their understanding of the threats to the organisation and how they can report their concerns. The statistics demonstrate that tips provide the most common detection method. To improve the chances of detecting fraud, it is essential that employees are confident that they will not be treated unfairly or discriminated against for ‘blowing the whistle’. The organisation will then need to investigate the reported wrongdoing, and if appropriate, take disciplinary and/or legal action. It is essential that action is taken and be seen to be taken. The tone from the top must make clear that fraud will not be tolerated. As is often the case, actions speak louder than words.”
Claire Broadbelt, a Partner in the Fraud Defence team at Mishcon de Reya says:
“The six red flags identified in the Report relating to the most common behavioural indicators come as no surprise. Where an organisation becomes aware of an employee living beyond their means, for example, where a middle-management employee is driving an expensive sports car or frequently holidaying in expensive resorts in distant countries, this should trigger interest by senior management. If those signs are coupled with the employee having excessive control or an unwillingness to share duties, it may be appropriate for an independent and unannounced review to be undertaken relating to the business operations for which that employee is responsible. Care must be taken not to accuse the employee of wrongdoing at that stage. The purpose of the investigation is to ascertain whether there is reasonably credible evidence suggesting wrongdoing, and then if appropriate, escalate to the HR or legal team for input on how best to deal with the concerns. It is also important that at all stages, the investigation is undertaken by experienced investigators who are familiar with the obligations imposed by the Data Protection Regulations and who are accustomed to collating evidence which could be utilised in disciplinary and/or legal proceedings at a later date.”
