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• The average organization loses more than $9 per day per employee to fraud and abuse.
• The average organization loses about 6 percent of its total annual revenue to fraud and abuse committed by its own employees.
• The median loss caused by males is about $185,000; by females about $48,000.
• The typical perpetrator is a college-educated, white male.
• Men commit nearly 75 percent of the offenses.
• Losses caused by managers are four times those caused by employees.
• Median losses caused by executives are 16 times those of their employees.
• The most costly abuses occur in organizations with less than 100 employees.
In 2002 the ACFE issued its most recent Report to the Nation. This document is based on the findings of 663 Certified Fraud Examiners (CFEs) who investigated fraud cases totaling more than $7 billion in losses. Again, as in 1996, the CFEs estimated their organizations will lose about 6 percent of revenues to fraud, now about $4,500 per employee. Applied to the U.S. gross domestic product, these loss ratios mean it is now possible that occupational fraud in the United States is a $600 billion annual problem. Of the losses investigated, more than half were in excess of $100,000 and nearly one in six caused a loss in excess of $1 million.
Other findings of the report include data that indicates:5
• Over 80 percent of the occupational frauds involve asset misappropriation. Cash was the target in 90 percent of the incidents.
• Corruption schemes accounted for 13 percent of all occupational frauds and on average they caused more than $500,000 in losses.
• Fraudulent statements were the most costly form of fraud, with median losses of $4.25 million per scheme.
• The average fraud existed for 18 months before it was detected.
• The most common method of exposure was a tip from an employee, customer, vendor, or anonymous source. Accidental discovery was the second most common means by which frauds were detected.
• Organizations with fraud hotlines cut their fraud losses by approximately 50 percent per scheme. Internal audits, external audits, and preemployment background checks also significantly reduce fraud losses.
• The typical perpetrator is a first-time offender, at least insofar as having a criminal record. Only 7 percent of perpetrators had a prior conviction for a fraud offense.
THE STATE OF OCCUPATIONAL FRAUD
• Small businesses have the greatest vulnerability. The average scheme in a small business resulted in a $127,500 loss, while for larger companies the average was $97,000.
Wells is not alone in these dire assessments. One author and researcher, writing of the savings and loan debacle, has estimated it alone may cost the U.S. taxpayer $1 trillion over the next several decades.6 The Attorney General of the United States, in the U.S. Department of Justice (DOJ) Fiscal Year 2000 Performance Report and Fiscal Year 2002 Performance Plan, notes that the DOJ has requested to expend 9,807 full-time equivalent positions in 2002 on white-collar crime alone. This report also contains input from the Inspector General of the Department of Health and Human Services (HHS), which states that while audits conducted by that office indicate improper payments to health care providers are down to only 8 percent, this still accounts for $13.5 billion in losses each year.7 We should note, however, that both the DOJ and the HHS figures pertain to all forms of fraud, not just occupational fraud. Certainly, some of the resources requested by the DOJ and some of the fraud reported by the HHS is occupational in nature, (i.e., it is committed by employees against their employer). Likewise, the Office of Management and Budget reported that in fiscal year 2001 the federal government paid out $20 billion in erroneous payments.8 Presumably, this figure includes payments of the type reported by the Inspector General of the HHS, and certainly some portion of it is occupational fraud. Unfortunately, we do not know how much.
Milton Meltzer, in his book Crime In America, offers the following figures to begin to comprehend the size of white-collar crime in the United States:9
• Fraud by business costs the nation over $100 billion per year, reports the National Association of Attorneys General.
• In sum, the dollar cost of corporate crime in the United States is more than ten times greater than the combined total from larcenies, robberies, burglaries, and auto thefts committed by individuals.”
We must note that Meltzer is describing the apparent size of white-collar crime, which he defines as, “crime committed by a person in a position of trust, for his or her personal gain.”10 While the figures he cites are certainly impressive, especially noting his book was written in 1990, we do not know what portion of these crime figures represents occupational fraud. Certainly, some does. This is an area we will address further with regard to definitions and how they affect our understanding of occupational fraud and its dimensions.