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Investigative insights are provided by Carolina Investigative Associates


Could Your Business Be a Victim of Fraud?


The 2014 edition of the Report to the Nations on Occupational Fraud and Abuse ( was just released. It covers nearly 1,500 cases of white collar crime, occurring in more than 100 countries. About 650 of these cases involved U.S. organizations.


Significant findings from the Association of Certified Fraud Examiners (ACFE) are the following:

Median losses. Globally, the median loss caused by the frauds in the ACFE study was $145,000. Domestically, the median loss was only $100,000, however.

  1.  From start to finish, the median fraud scheme took 18 months to uncover. The longer fraud schemes go undetected, the more financial losses they tend to cause.
  2.  The biggest fraud losses were caused by owners and executives, who tend to be men over 60 years of age who have worked for the organization for more than 10 years.

Most fraudsters had no prior criminal record. But prior to being caught, many white collar criminals exhibited classic red flags of fraudulent behavior, such as living beyond their means, unusually close ties with vendors/ customers, and financial difficulties in their personal lives.

Initial fraud detection methods by percentage of total cases reported are the following:


Initial Detection Method % Cases
Tip 42.2
Management Review 16.0
Internal Audit 14.1
Accidental Discovery 6.8
Account Reconciliation 6.6
Document Examination 4.2
External Audit 3.0
Surveillance/Monitoring 2.2
Notified by Police 1.8
IT Controls 1.1
Confession 0.8


Proactive detection methods uncovered fraud in the shortest period of time and resulted in the lowest number of losses as follows:

  • Surveillance/monitoring;
  • Account reconciliation;
  • IT controls;
  • Internal audit; and
  • Management review.


Ask for Help

Honest employees are an organization’s first line of defense against white collar crime. Tips are the most common method of detecting fraud.

Here are some ways you can encourage employees to join in the fight against fraud:

Invest in training. Educate staff on the red flags associated with fraud from within and outside the company. This helps detect and prevent fraud. It also sends a powerful message about your company’s intention to fight fraud no matter where it originates. Employees must perceive a high probability that fraudulent activity will be detected. The perception of detection is often sufficient enough to dissuade them.

Engage management in the fight. Managers must be seen and heard reviewing controls and urgently correcting weaknesses that might be detected. If your organization’s managers are perceived to be unwilling or unable to take the time to review the controls, they may inadvertently be sending a message that it is safe to commit fraud.

Set up a hotline. Fraud reporting hotlines can be an effective method of obtaining tips about unethical behaviors. Unfortunately, many small businesses shy away from hotlines, because they think hotlines are too expensive and difficult to administer. A number of providers offer hotlines designed explicitly with small businesses in mind. The cost per employee is minimal in relation to the fraud it can help to uncover and the losses avoided.

ACFE reports that tips led to the detection of fraud in 51 percent of the cases involving organizations with reporting hotlines, but only 33 percent of the cases involving organizations without hotlines.

The fact that more than half of all tips involved parties other than confirmed employees emphasizes the importance of cultivating tips from various sources. So it’s also advantageous to educate vendors, customers and owners on how to report suspicions of fraud.

Contact your professional advisers. Accounting firms, law firms and investigative agencies can help businesses reinforce their internal controls and investigate if you suspect fraud.