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 my discussion of the Association of Certified Fraud Examiners (ACFE) “Occupational Fraud 2022 – A Report to the Nations.” This week, I discuss 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 2022 Report, as with the 2020 Report found that only 4 percent of all frauds were detected by external auditors.  The percentage of frauds detected by accident remained at 5 percent – higher than the audit rate.
• The most frequent method by which frauds were detected came from tips – the 2022 Report found that 42 percent of all frauds were detected from tips. Employees were the source of 55 percent of all tips, followed by customers (18 percent), anonymous tips (16 percent) and vendors (10 percent).  The employee percentage was up from the 50 percent rate in the 2020 report.  This possibly means that more employees are willing to report fraud than in the past.
• Internal auditors detected 16 percent of all frauds.
• Management review detected 12 percent of all frauds.
• The 2022 Report found that, although owners and executives committed only 23 percent of all frauds, the median loss from such frauds was $337,000 (down from $600,000 in 2020). Managers committed 39 percent of all frauds with a median loss of $125,000 (down from $150,000 in 2020), and lower-level employees committed 37 percent of all frauds with a median loss of $50,000 (down from $60,000 in 2020).
• Tenure with the organization correlated with the amount of fraud loss. The median fraud loss from employees with 5 years or less tenure remained at $100,000.  This grew to $137,000 (down from $190,000 in 2020) for employees with 6 to 10 years tenure, and to $250,000 (up from $200,000 in 2020) for employees with more than 10 years tenure.
• Men were responsible for 73 percent of all frauds with a median loss of $125,000 (down from $150,000 in 2020). Women were responsible for 27 percent of all frauds with a median loss of $100,000 (up from $85,000 in 2020).  The lower loss level is most likely due to the lower number of women in senior positions.  However, the spread appears to be narrowing as more women move into senior positions.
• The perpetrator’s age followed a bell curve with 68 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.
• 87 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
  • Known for bullying or intimidation
  • 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, inflation, etc.) that many people continue to face due to the COVID-19 virus, it is likely that the incidence of red flags will continue to increase over the next two years.

My next blog article will discuss the various anti-fraud controls that businesses/organizations employee, and the effectiveness of each of the controls.

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 in Philadelphia who has more than 30 years of experience in financial and operational leadership positions and is a Certified Public Accountant, a Certified Valuation Analyst, and a Certified Fraud Examiner in Philadelphia.

If you require the services of a Certified Valuation Analyst in Philadelphia 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 david@davidandersonassociates.com.