David Anderson is principal of David Anderson & Associates, a Philadelphia forensic accounting firm that provides a full range of fraud investigation, forensic accounting, and marital dissolution services in Philadelphia and the Delaware Valley.

This blog continues the dissection and analysis by forensic accounting expert David Anderson of the Association of Certified Fraud Examiners’ (ACFE) “2020 Report to the Nations – 2020 Global Study on Occupational Fraud and Abuse.”  This week, Anderson – from David Anderson & Associates, a Certified Fraud Examiner in Philadelphia – discusses how frauds are detected and the characteristics of the people who commit fraud:

• Most people believe having a financial audit will detect fraud. However, the 2020 Report found that only 4 percent of all frauds were detected by external auditors.  The percentage of frauds detected by accident was 5 percent – higher than the audit rate.
• The most frequent method by which frauds were detected came from tips – the 2020 Report found that 43 percent of all frauds were detected from tips. Employees were the source of 50 percent of all tips, followed by customers (22 percent), anonymous tips (15 percent) and vendors (11 percent).
• Internal auditors detected 15 percent of all frauds.
• Management review detected 12 percent of all frauds.
• The 2020 Report found that although owners and executives committed only 20 percent of all frauds, the median loss from such frauds was $600,000. Managers committed 35 percent of all frauds with a median loss of $150,000, and lower level employees committed 41 percent of all frauds with a median loss of $60,000.
• Tenure with the organization correlated with the amount of fraud loss. The median fraud loss from employees with 5 years or less tenure was about $100,000.  This grew to $190,000 for employees with 6 to 10 years tenure, and to $200,000 for employees with more than 10 years tenure.
• Men were responsible for 72 percent of all frauds with a median loss of $150,000. Women were responsible for 28 percent of all frauds with a median loss of $85,000.  The lower loss level is most likely due to the lower number of women in senior positions.
• The perpetrator’s age followed a bell curve with 67 percent of all frauds committed by persons between the ages of 30 and 50. The median loss correlated directly with the perpetrator’s age in that the older the person, the higher the median loss.  This is most likely because the older the person, the higher up they are likely to be in the business or organization.
• 89 percent of all perpetrators had no criminal background.
• 85 percent of perpetrators displayed at least one behavioral red flag. These included:
  • Living beyond their means
  • Having known financial difficulties
  • Having an unusually close relationship with a customer or vendor
  • Having control issues, including an unwillingness to share duties
  • Experiencing divorce or other known family problems
  • Having a “Wheeler-Dealer” attitude
  • Displaying frequent irritability, suspiciousness or defensiveness
  • Having known addiction problems (drugs, gambling, alcohol, etc.)
  • Frequent complaining about inadequate pay

Given the financial difficulties (loss of wages, furloughs, medical costs, loss of other income, etc.) that many people are facing due to the COVID-19 virus, it is likely that the incidence of red flags will increase over the next two years.

David Anderson’s next blog article will discuss the various anti-fraud controls that businesses/organizations employ, and the effectiveness of each of the controls.

Do you need the services of a Certified Fraud Examiner? If so, you should speak with one from an experienced firm that provides forensic accounting services in Philadelphia and the Delaware Valley. You can do this by contacting the Philadelphia forensic accounting firm of David Anderson & Associates by calling David Anderson at 267-207-3597 or emailing him at david@davidandersonassociates.com.

About David Anderson & Associates

David Anderson & Associates is a Philadelphia forensic accounting firm that provides a full range of forensic accounting services in Philadelphia and the Delaware Valley.  The experienced professionals at David Anderson & Associates provide forensic accounting, business valuation, fraud investigation, fraud deterrence, litigation support, economic damage analysis, business consulting and outsourced CFO services.  Company principal David Anderson is a forensic accounting expert who has more than 30 years of experience in financial and operational leadership positions and is a Certified Public Accountant, a Certified Fraud Examiner, and a Certified Valuation Analyst.