David Anderson is principal of David Anderson & Associates, a Philadelphia forensic accounting firm that provides a full range of fraud investigation, fraud deterrence programs and forensic accounting services in Philadelphia and the Delaware Valley.
This blog continues the discussion started last week by forensic accounting expert David Anderson of David Anderson & Associates, a Certified Fraud Examiner in Philadelphia. Over the next few weeks, Anderson will be looking at the Association of Certified Fraud Examiners (ACFE) 2018 Report to the Nations – 2018 Global Study on Occupational Fraud and Abuse. This week, Anderson examines how frauds are detected and the characteristics of the people who commit fraud:
- Most people believe that having a financial audit will detect fraud. However, the 2018 Report found that only 4 percent of all frauds were detected by external auditors. The percentage of frauds detected by accident was 7 percent – nearly double the audit rate.
- The most frequent method by which frauds were detected came from tips – the 2018 Report found that 40 percent of all frauds were detected from tips. Employees were the source of 53 percent of all tips, followed by customers (21 percent), vendors (8 percent) and competitors (3 percent).
- Internal auditors detected 15 percent of all frauds.
- Management review detected 13 percent of all frauds.
- The 2018 Report found that although owners and executives committed only 19 percent of all frauds, the median loss from such frauds was $850,000. Managers committed 34 percent of all frauds with a median loss of $150,000, and lower level employees committed 44 percent of all frauds with a median loss of $50,000.
- 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 $173,000 for employees with 6 to 10 years tenure, and to $241,000 for employees with more than 10 years tenure.
- Men were responsible for 69 percent of all frauds with a median loss of $156,000. Women were responsible for 31 percent of all frauds with a median loss of $89,000. 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.
- Ninety-six percent of all perpetrators had no criminal background.
- Eighty-five 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
Next week’s blog article will discuss the various anti-fraud controls that businesses/organizations employ, and the effectiveness of each of the controls.
If you require the services of a Certified Fraud Examiner or any other forensic accounting services in Philadelphia and the Delaware Valley, please contact the Philadelphia forensic accounting firm of David Anderson & Associates by calling David Anderson at 267-207-3597 or emailing him at email@example.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, litigation support, economic damage analysis, business consulting and outsourced CFO services. Company principal David Anderson 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.