REPORT TO THE NATIONS

O N O C C U P AT I O N A L F R A U D A N D A B U S E
2010 Global Fraud Study
2 | 2010 REPORT TO THE NATIONS ON OCCUPATIONAL FRAUD AND ABUSE
Letter from the President
When the ACFE published its first Report to the Nation on Occupational Fraud and Abuse in 1996,
it broke new ground in anti-fraud research by providing an analysis of the costs, the methodologies
and the perpetrators of fraud within U.S. organizations. The collective body of knowledge con-
tained in the first five editions of the Report to the Nation — published between 1996 and 2008
— has become the most authoritative and widely quoted research publication on occupational
fraud.
Now, for the first time, the data contained in the Report have been drawn from fraud cases
throughout the world. As readers will see, it reflects the truly universal nature of occupational fraud. This expansion of
our research is denoted in the modified title for this study, which has now become the Report to the Nations on Occu-
pational Fraud and Abuse.
The information contained in this report is based on 1,843 cases of occupational fraud that were reported by the Certified
Fraud Examiners (CFEs) who investigated them. These offenses occurred in more than 100 countries on six continents,
and more than 43% took place outside the United States. What is perhaps most striking about the data we gathered is
how consistent the patterns of fraud are around the globe. While some regional differences exist, for the most part oc-
cupational fraud seems to operate similarly whether it occurs in Europe, Asia, South America or the United States.
The Report to the Nations is the brainchild of the ACFE’s founder and Chairman, Dr. Joseph T. Wells, CFE, CPA who
throughout his career has contributed more to the study of fraud and the development of the anti-fraud profession than
any other person. On behalf of the ACFE, and in honor of its founder, Dr. Wells, I am pleased to present the 2010 Report to
the Nations on Occupational Fraud and Abuse to practitioners, business and government organizations, academics, the
media and the general public throughout the world. The information contained in this Report will be invaluable to those
who seek to deter, detect, prevent or simply understand the global economic impact of occupational fraud.
James D. Ratley, CFE
President,
Association of Certified Fraud Examiners
2010 REPORT TO THE NATIONS ON OCCUPATIONAL FRAUD AND ABUSE | 3
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Executive Summary ............................................................................................................................................................. 4
Introduction .......................................................................................................................................................................... 6
The Cost of Occupational Fraud .......................................................................................................................................... 8
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How Occupational Fraud Is Committed ............................................................................................................................ 10
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Detection of Fraud Schemes ............................................................................................................................................. 16
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Victim Organizations .......................................................................................................................................................... 24
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Perpetrators ........................................................................................................................................................................ 48
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Methodology ...................................................................................................................................................................... 75
Appendix — Breakdown of Geographic Regions by Country .......................................................................................... 78
Fraud Prevention Checklist ................................................................................................................................................ 80
About the ACFE .................................................................................................................................................................. 82
4 | 2010 REPORT TO THE NATIONS ON OCCUPATIONAL FRAUD AND ABUSE
Summary of Findings
Survey participants estimated that the typical t
organization loses 5% of its annual revenue to
fraud. Applied to the estimated 2009 Gross World
Product, this figure translates to a potential total
fraud loss of more than $2.9 trillion.
The median loss caused by the occupational t
fraud cases in our study was $160,000. Nearly
one-quarter of the frauds involved losses of at
least $1 million.
The frauds lasted a median of 18 months before t
being detected.
Asset misappropriation schemes were the most t
common form of fraud in our study by a wide
margin, representing 90% of cases — though they
were also the least costly, causing a median loss
of $135,000. Financial statement fraud schemes
were on the opposite end of the spectrum in both
regards: These cases made up less than 5% of
the frauds in our study, but caused a median loss
of more than $4 million — by far the most costly
category. Corruption schemes fell in the middle,
comprising just under one-third of cases and
causing a median loss of $250,000.
Occupational frauds are much more likely to be t
detected by tip than by any other means. This
finding has been consistent since 2002 when we
began tracking data on fraud detection methods.
Small organizations are disproportionately t
victimized by occupational fraud. These
organizations are typically lacking in anti-fraud
controls compared to their larger counterparts,
which makes them particularly vulnerable to fraud.
The industries most commonly victimized in our t
study were the banking/financial services,
manufacturing and government/public
administration sectors.
Anti-fraud controls appear to help reduce the cost t
and duration of occupational fraud schemes. We
looked at the effect of 15 common controls on
the median loss and duration of the frauds. Victim
organizations that had these controls in place had
significantly lower losses and time-to-detection than
organizations without the controls.
High-level perpetrators cause the greatest t
damage to their organizations. Frauds commit-
ted by owners/executives were more than three
times as costly as frauds committed by managers,
and more than nine times as costly as employee
frauds. Executive-level frauds also took much
longer to detect.
Executive Summary
This Report is based on data
compiled from a study of 1,843
cases of occupational fraud that
occurred worldwide between
January 2008 and December
2009. All information was pro-
vIded bv LIe CerLIhed ¡ruud Ex-
umIners (C¡Es) wIo InvesLIguLed
those cases. The fraud cases in
our study came from 106 nations
— with more than 40% of cases
occurrIng In counLrIes ouLsIde
LIe UnILed SLuLes - provIdIng u
LruIv gIobuI vIew InLo LIe pIugue
of occupational fraud.
One-fourth of the frauds in this Report
caused at least $1 million in losses.
2010 REPORT TO THE NATIONS ON OCCUPATIONAL FRAUD AND ABUSE | 5
More than 80% of the frauds in our study t
were committed by individuals in one of six
departments: accounting, operations, sales,
executive/upper management, customer service
or purchasing.
More than 85% of fraudsters in our study had t
never been previously charged or convicted for
a fraud-related offense. This finding is consistent
with our prior studies.
Fraud perpetrators often display warning signs t
that they are engaging in illicit activity. The most
common behavioral red flags displayed by the
perpetrators in our study were living beyond their
means (43% of cases) and experiencing financial
difficulties (36% of cases).
Conclusions and Recommendations
Occupational fraud is a global problem. Though t
some of our findings differ slightly from region to
region, most of the trends in fraud schemes, per-
petrator characteristics and anti-fraud controls are
similar regardless of where the fraud occurred.
Fraud reporting mechanisms are a critical t
component of an effective fraud prevention and
detection system. Organizations should implement
hotlines to receive tips from both internal and
external sources. Such reporting mechanisms
should allow anonymity and confidentiality, and
employees should be encouraged to report
suspicious activity without fear of reprisal.
Organizations tend to over-rely on audits. External t
audits were the control mechanism most widely
used by the victims in our survey, but they ranked
comparatively poorly in both detecting fraud and
limiting losses due to fraud. Audits are clearly
important and can have a strong preventative
effect on fraudulent behavior, but they should not
be relied upon exclusively for fraud detection.
Employee education is the foundation of t
preventing and detecting occupational fraud.
Staff members are an organization’s top fraud
detection method; employees must be trained in
what constitutes fraud, how it hurts everyone in
the company and how to report any questionable
activity. Our data show not only that most frauds
are detected by tips, but also that organizations
that have anti-fraud training for employees and
managers experience lower fraud losses.
Surprise audits are an effective, yet underutilized, t
tool in the fight against fraud. Less than 30% of
victim organizations in our study conducted
surprise audits; however, those organizations
tended to have lower fraud losses and to detect
frauds more quickly. While surprise audits can be
useful in detecting fraud, their most important
benefit is in preventing fraud by creating a percep-
tion of detection. Generally speaking, occupational
fraud perpetrators only commit fraud if they
believe they will not be caught. The threat of
surprise audits increases employees’ perception
that fraud will be detected and thus has a strong
deterrent effect on potential fraudsters.
Small businesses are particularly vulnerable to t
fraud. In general, these organizations have far fewer
controls in place to protect their resources from
fraud and abuse. Managers and owners of small
businesses should focus their control investments
on the most cost-effective mechanisms, such
as hotlines and setting an ethical tone for their
employees, as well as those most likely to help
prevent and detect the specific fraud schemes that
pose the greatest risks to their businesses.
Internal controls alone are insufficient to fully t
prevent occupational fraud. Though it is important
for organizations to have strategic and effective
anti-fraud controls in place, internal controls will
not prevent all fraud from occurring, nor will they
detect most fraud once it begins.
Fraudsters exhibit behavioral warning signs of their t
misdeeds. These red flags — such as living beyond
one’s means or exhibiting control issues — will not
be identified by traditional controls. Auditors and
employees alike should be trained to recognize the
common behavioral signs that a fraud is occurring
and encouraged not to ignore such red flags, as
they might be the key to detecting or deterring a
fraud.
Given the high costs of occupational fraud, t
effective fraud prevention measures are critical.
Organizations should implement a fraud prevention
checklist similar to that on page 80 in order to help
eliminate fraud before it occurs.
6 | 2010 REPORT TO THE NATIONS ON OCCUPATIONAL FRAUD AND ABUSE
A wide variety of crimes and swindles fall under the um-
brella of fraud. From Ponzi schemes and identity theft to
data breaches and falsified expense reports, the ways
perpetrators attempt to part victims from their money are
extremely diverse and continually evolving. At their core,
however, all frauds involve a violation of trust.
For businesses, no trust violations have the potential to be
as harmful as those committed by the very individuals who
are relied upon to make the organization successful: its
employees. This report focuses on the category of fraud
— occupational fraud — in which an employee abuses his
or her position within the organization for personal gain.
More formally, occupational fraud may be defined as:
The use of one’s occupation for personal enrichment
through the deliberate misuse or misapplication of
the employing organization’s resources or assets.
This definition is very broad, encompassing a wide range
of misconduct by employees at every organizational level.
Occupational fraud schemes can be as simple as pilferage
of company supplies or manipulation of timesheets, or as
complex as sophisticated financial statement frauds.
One of the ACFE’s primary missions is to educate anti-
fraud professionals and the general public about the seri-
ous threat occupational fraud poses. To that end, we have
undertaken extensive research to provide an in-depth look
at the costs and trends in occupational fraud. In 1996, the
ACFE released its Report to the Nation on Occupational
Fraud and Abuse, which was the largest known privately
funded study on the subject at the time.
The stated goals of the first Report were to:
Summarize the opinions of experts on the percentage t
and amount of organizational revenue lost to all
forms of occupational fraud and abuse.
Examine the characteristics of the employees who t
commit occupational fraud and abuse.
Determine what kinds of organizations are victims t
of occupational fraud and abuse.
Categorize the ways in which serious fraud and t
abuse occur.
Since the inception of the Report to the Nation more than
a decade ago, we have released five updated editions — in
2002, 2004, 2006, 2008 and the current version in 2010. Like
the first Report, each subsequent edition has been based
on detailed case information provided by Certified Fraud Ex-
aminers (CFEs). With each new edition of the Report, we
add to and modify the questions we ask of our survey par-
ticipants in order to enhance the quality of the data we col-
lect. This evolution of the Report to the Nation has enabled
us to continue to draw more meaningful information from
the experiences of CFEs and the frauds they encounter.
In our 2010 Report, we have, for the first time ever, wid-
ened our study to include cases from countries outside
the United States. This expansion allows us to more fully
explore the truly global nature of occupational fraud and
provides an enhanced view into the severity and impact
of these crimes. Additionally, we are able to compare the
anti-fraud measures taken by organizations worldwide in
order to give fraud fighters everywhere the most appli-
cable and useful information to help them in their fraud
prevention and detection efforts.
Introduction
A Note to Readers: Throughout this Report, we have included several comparisons of our current findings with those from our 2008 Report. However, it is important to note that
the 2010 data include reported frauds from CFEs in 106 countries, while the 2008 data pertain to frauds reported only by CFEs in the United States. Although the populations of
respondents for the two studies are not entirely analogous, we have nonetheless included these prior-study comparisons, as we believe interesting and useful trends can be seen
by comparing and contrasting the frauds reported in the two studies. To enhance data clarity, we have included comparisons of 2008 data with both all-case data and U.S.-only data
from our 2010 research when noteworthy discrepancies in our current findings are present.
2010 REPORT TO THE NATIONS ON OCCUPATIONAL FRAUD AND ABUSE | 7
Occupational Fraud and Abuse Classification System

Corruption
Conflicts of
Interest
Cash
Fraudulent
Disbursements
Purchasing
Schemes
Sales
Schemes
Bid Rigging
Other Other
Larceny Skimming Misuse Larceny
Asset
Requisitions
and Transfers
False Sales
and Shipping
Purchasing
and Receiving
Unconcealed
Larceny
Sales
Unrecorded
Write-off
Schemes
Lapping
Schemes
Unconcealed
Understated
Receivables
Refunds
and Other
Other
Cash on
Hand
From the
Deposit
Billing Schemes Payroll Schemes
Expense
Reimbursement
Schemes
Check Tampering
Register
Disbursements
Forged Maker False Voids
False Refunds
Forged
Endorsement
Concealed
Checks
Authorized
Maker
Altered Payee
Mischaracterized
Expenses
Ghost
Employees
Commission
Schemes
Overstated
Expenses
Fictitious
Expenses
Multiple
Reimbursements
Workers
Compensation
Falsified Wages
Shell Company
Non-Accomplice
Vendor
Personal
Purchases
Invoice
Kickbacks
Asset/Revenue
Overstatements
Timing
Differences
Ficticious
Revenues
Improper
Disclosures
Concealed
Liabilities and
Expenses
Improper
Asset
Valuations
Asset/Revenue
Understatements
Employment
Credentials
Internal
Documents
External
Documents
Illegal
Gratuities
Economic
Extortion
Non-Cash
Non-
Financial
Bribery Financial
Asset
Misappropriation
Fraudulent
Statements
8 | 2010 REPORT TO THE NATIONS ON OCCUPATIONAL FRAUD AND ABUSE
Measuring the cost of occupational fraud is an important,
yet incredibly challenging, endeavor. Arguably, the true
cost is incalculable. The inherently clandestine nature
of fraud means that many cases will never be revealed,
and, of those that are, the full amount of losses might not
be uncovered, quantified or reported. Consequently, any
measurement of occupational fraud costs will be, at best,
an estimate. Nonetheless, determining such an approxi-
mation is critical to illustrate the pandemic and destruc-
tive nature of white-collar crime.
We asked each CFE who participated in our survey to pro-
vide his or her best estimate of the percentage of annual
revenues that the typical organization loses to fraud in a
given year. The median response was that the average
organization annually loses 5% of its revenues to fraud.
Applying this percentage to the 2009 estimated Gross
World Product of $58.07 trillion
1
would result in a pro-
jected total global fraud loss of more than $2.9 trillion.
Readers should note that this estimate is based solely
on the opinions of 1,843 anti-fraud experts, rather than
any specific data or factual observations; accordingly, it
should not be interpreted as a literal representation of the
worldwide cost of occupational fraud. However, because
there is no way to precisely calculate the size of global
fraud losses, the best estimate of anti-fraud profession-
als with a frontline view of the problem may be as reli-
able a measure as we are able to make. In any event, it
is undeniable that the overall cost of occupational fraud
is immense, certainly costing organizations hundreds of
billions or trillions of dollars each year.
The Cost of Occupational Fraud
1
United States Central Intelligence Agency, The World Factbook (https://www.cia.gov/
library/publications/the-world-factbook/geos/xx.html)
¡ruud, bv ILs verv nuLure, does
noL Iend ILseII Lo beIng scIen-
LIhcuIIv observed or meusured
in an accurate manner. One of
the primary characteristics of
fraud is that it is clandestine,
or hidden; almost all fraud in-
volves the attempted conceal-
ment of the crime.
The typical organization loses 5% of its
annual revenues to occupational fraud.
2010 REPORT TO THE NATIONS ON OCCUPATIONAL FRAUD AND ABUSE | 9
Distribution of Losses
We received information about the total dollar loss for 1,822 of the 1,843 frauds reported to us in our study.
2
The median
loss for these cases was $160,000. Nearly one-third of the fraud schemes caused a loss to the victim organization of
more than $500,000, and almost one-quarter of all reported cases topped the $1 million threshold.
Distribution of Dollar Losses
2
Although this Report includes fraud cases from more than 100 nations, all monetary amounts presented throughout this Report are in U.S. dollars.
0%
5%
10%
15%
20%
25%
30%
$1,000,000
and up
$500,000 –
$999,999
$100,000 –
$499,999
$50,000 –
$99,999
$10,000 –
$49,999
$1,000 –
$9,999
Less than
$1,000
Dollar Loss
P
e
r
c
e
n
t

o
f

C
a
s
e
s
2.4%
7.2%
18.4%
10.6%
29.3%
8.4%
23.7%
10 | 2010 REPORT TO THE NATIONS ON OCCUPATIONAL FRAUD AND ABUSE
Previous ACFE research has identified three primary cat-
egories of occupational fraud used by individuals to de-
fraud their employers. Asset misappropriations are those
schemes in which the perpetrator steals or misuses an
organization’s resources. These frauds include schemes
such as skimming cash receipts, falsifying expense re-
ports and forging company checks.
Corruption schemes involve the employee’s use of his or
her influence in business transactions in a way that vio-
lates his or her duty to the employer for the purpose of
obtaining a benefit for him- or herself or someone else.
Examples of corruption schemes include bribery, extor-
tion and a conflict of interest.
Financial statement fraud schemes are those involving
the intentional misstatement or omission of material in-
formation in the organization’s financial reports. Common
methods of fraudulent financial statement manipulation
include recording fictitious revenues, concealing liabili-
ties or expenses and artificially inflating reported assets.
As indicated in the following charts, asset misappropriations
are by far both the most frequent and the least costly form
of occupational fraud. On the other end of the spectrum are
cases involving financial statement fraud. These schemes
were present in less than 5% of the cases reported to us,
but caused a median loss of more than $4 million. Corrup-
tion schemes fell in the middle category in both respects,
occurring in just under one-third of all cases involved in our
study and causing a median loss of $250,000.
How Occupational Fraud Is Committed
Bused on prevIous AC¡E
research we have broken down
the schemes reported to us
InLo LIree prImurv cuLegorIes:
asset misappropriation,
corrupLIon, und hnuncIuI
statement fraud.
Financial statement fraud is the most
costly form of occupational fraud, causing
a median loss of more than $4 million.
2010 REPORT TO THE NATIONS ON OCCUPATIONAL FRAUD AND ABUSE | 11
Occupational Frauds by Category — Frequency
3
Occupational Frauds by Category — Median Loss
3
The sum of percentages in this chart exceeds 100% because several cases involved schemes from more than one category.
0% 20% 40% 60% 80% 100%
2010
2008
Financial
Statement Fraud
Corruption
Asset
Misappropriation
88.7%
32.8%
10.3%
86.3%
26.9%
4.8%
Percent of Cases
T
y
p
e

o
f

F
r
a
u
d
$0 $1,000,000 $2,000,000 $3,000,000 $4,000,000 $5,000,000
2010
2008
Asset
Misappropriation
Corruption
Financial
Statement Fraud
Median Loss
T
y
p
e

o
f

F
r
a
u
d
$4,100,000
$2,000,000
$250,000
$135,000
$150,000
$375,000
12 | 2010 REPORT TO THE NATIONS ON OCCUPATIONAL FRAUD AND ABUSE
As previously mentioned, our 2010 data include fraud cases from countries throughout the world, while our 2008 data
contain only U.S.-based cases. In the following charts, we isolated the U.S. cases from our current study to make a more
direct comparison to our 2008 data. Interestingly, while financial statement fraud remained the least common and most
costly form of fraud among U.S. cases, there was a much lower percentage of financial statement cases in this study
(four percent) as compared to 2008 (ten percent). Additionally, the median losses for all three categories of fraud were
notably smaller in 2010 than they were in 2008.
How Occupational Fraud Is Committed
Occupational Frauds by Category (U.S. only) — Frequency
4
4
The sum of percentages in this chart exceeds 100% because several cases involved schemes from more than one category.
0% 20% 40% 60% 80% 100%
2010
2008
Financial
Statement Fraud
Corruption
Asset
Misappropriation
88.7%
21.9%
10.3%
89.8%
26.9%
4.3%
Percent of Cases
T
y
p
e

o
f

F
r
a
u
d
2010 REPORT TO THE NATIONS ON OCCUPATIONAL FRAUD AND ABUSE | 13
In addition to observing the frequency and median losses
caused by the three categories of fraud, we analyzed the
proportion of the total losses suffered based on scheme
category. The cases in our study represented a combined
total loss of more than $18 billion. As indicated in the chart
to the right, of the total reported losses that were attribut-
able to a specific scheme type, 21% were caused by asset
misappropriation schemes, 11% by corruption and 68%
by fraudulent financial statements.
Occupational Frauds by Category (U.S. only) — Median Loss
Percent of Total Reported Dollar Losses
$0 $500,000 $1,000,000 $1,500,000 $2,000,000
2010
2008
Asset
Misappropriation
Corruption
Financial
Statement Fraud
Median Loss
T
y
p
e

o
f

F
r
a
u
d
$1,730,000
$2,000,000
$175,000
$100,000
$150,000
$375,000
Financial Statement Fraud
68.0%
Asset Misappropriation
20.8%
Corruption
11.3%
14 | 2010 REPORT TO THE NATIONS ON OCCUPATIONAL FRAUD AND ABUSE
How Occupational Fraud Is Committed
Asset Misappropriation Sub-Schemes
With nearly 90% of occupational frauds involving some form of asset misappropriation, it is instructional to further de-
lineate the methods used by employees to embezzle organizational assets. We divided asset misappropriation schemes
into nine sub-categories, as illustrated in the table on page 15. The first eight sub-categories represent schemes target-
ing cash; these frauds account for approximately 85% of all asset misappropriations.
Two of the sub-schemes — skimming and cash larceny — involve pilfering incoming cash receipts, such as sales revenues
and accounts receivable collections. The next five sub-categories — billing, expense reimbursement, check tampering,
payroll and fraudulent register disbursement schemes — involve fraudulent disbursements of cash. The eighth form of
cash misappropriation targets cash the organization has on hand, such as petty cash funds or cash in a vault. The final
sub-category of asset misappropriations covers the theft or misuse of non-cash assets, including inventory, supplies, fixed
assets, investments, intellectual property and proprietary information. The table on page 15 provides the frequency and
median loss associated with each asset misappropriation sub-category.
Duration of Fraud Schemes
In addition to examining the monetary cost of the fraud cases reported to us, we analyzed the length of time these schemes
lasted before being detected. The median duration — the time period from when the fraud first occurred to when it was
discovered — for all cases in our study was 18 months. Not surprisingly, cases involving financial statement fraud — the
most costly form of fraud — lasted the longest, with a median duration of 27 months. Fraudulent register disbursements,
on the other hand, were not only the least costly form of fraud in our study, but also tended to be detected the soonest.
Median Duration of Fraud Based on Scheme Type
0 5 10 15 20 25 30
Register Disbursement
Non-Cash
Larceny
Skimming
Cash on Hand
Corruption
Billing
Payroll
Expense Reimbursements
Check Tampering
Financial Statement Fraud 27
24
24
24
24
18
18
18
18
15
12
Median Months to Detection
S
c
h
e
m
e

T
y
p
e
2010 REPORT TO THE NATIONS ON OCCUPATIONAL FRAUD AND ABUSE | 15
Asset Misappropriation Sub-Categories
Category Description Examples
Cases
Reported
Percent of
all cases
5
Median
Loss
Schemes Involving Theft of Cash Receipts
Skimming Any scheme in which cash is stolen from
an organization before it is recorded on the
organization’s books and records
Employee accepts payment from a t
customer, but does not record the sale,
and instead pockets the money
267 14.5% $60,000
Cash Larceny Any scheme in which cash is stolen from
an organization after it has been recorded
on the organization’s books and records
Employee steals cash and checks from t
daily receipts before they can be
deposited in the bank
181 9.8% $100,000
Schemes Involving Fraudulent Disbursements of Cash
Billing Any scheme in which a person causes
his employer to issue a payment by
submitting invoices for fictitious goods or
services, inflated invoices or invoices for
personal purchases
Employee creates a shell company and t
bills employer for services not actually
rendered
Employee purchases personal items t
and submits invoice to employer for
payment
479 26.0% $128,000
Expense
Reimbursements
Any scheme in which an employee makes
a claim for reimbursement of fictitious or
inflated business expenses
Employee files fraudulent expense t
report, claiming personal travel,
nonexistent meals, etc.
278 15.1% $33,000
Check Tampering Any scheme in which a person steals his
employer’s funds by intercepting, forging
or altering a check drawn on one of the
organization’s bank accounts
Employee steals blank company t
checks, makes them out to himself or
an accomplice
Employee steals outgoing check to a t
vendor, deposits it into his own bank
account
274 13.4% $131,000
Payroll Any scheme in which an employee causes
his employer to issue a payment by
making false claims for compensation
Employee claims overtime for hours not t
worked
Employee adds ghost employees to the t
payroll
157 8.5% $72,000
Cash Register
Disbursements
Any scheme in which an employee makes
false entries on a cash register to conceal
the fraudulent removal of cash
Employee fraudulently voids a sale on t
his cash register and steals the cash
55 3.0% $23,000
Other Asset Misappropriation Schemes
Cash on Hand
Misappropriations
Any scheme in which the perpetrator
misappropriates cash kept on hand at the
victim organization’s premises
Employee steals cash from a company t
vault
121 12.6% $23,000
Non-Cash
Misappropriations
Any scheme in which an employee steals
or misuses non-cash assets of the victim
organization
Employee steals inventory from a t
warehouse or storeroom
Employee steals or misuses confidential t
customer financial information
156 16.3% $90,000
5
The sum of percentages in this table exceeds 100% because several cases involved asset misappropriation schemes from more than one category.
Note: Because asset misappropriation schemes are both so common and so diverse in their methods, for the remainder
of the Report, we will break down our analysis of the fraud schemes into 11 categories — corruption, financial statement
fraud and the nine sub-categories of asset misappropriation — so as to provide a meaningful understanding of the full
spectrum of ways in which employees defraud their employing organizations.
16 | 2010 REPORT TO THE NATIONS ON OCCUPATIONAL FRAUD AND ABUSE
One of the principal goals of our research is to identify
how past frauds were detected so that organizations can
apply that knowledge to their future anti-fraud efforts.
Tips were by far the most common detection method in
our study, catching nearly three times as many frauds as
any other form of detection. This is consistent with the
findings in our prior reports. Tips have been far and away
the most common means of detection in every study
since 2002, when we began tracking the data.
Management review and internal audit were the second
and third most common forms of detection, uncovering
15% and 14% of frauds, respectively. It is also noteworthy
that 11% of frauds were detected through channels that
lie completely outside of the traditional anti-fraud control
structure: accident, police notification and confession. In
other words, 11% of the time, the victim organization ei-
ther had to stumble onto the fraud or be notified of it by a
third party in order to detect it.
Detection of Fraud Schemes
Initial Detection of Occupational Frauds
Respondents to our survey
were asked to identify how the
Iruuds were hrsL dIscovered.
Three times as many frauds in
our study were uncovered by a
tip as by any other method.
Frauds are much more likely to be
detected by tips than by any other method.
0% 10%
20% 30% 40% 50%
IT Controls
Confession
Notified by Police
Surveillance/Monitoring
External Audit
Document Examination
Account Reconciliation
By Accident
Internal Audit
Management Review
Tip 40.2%
15.4%
13.9%
8.3%
6.1%
5.2%
4.6%
2.6%
1.8%
1.0%
0.8%
Percent of Cases
D
e
t
e
c
t
i
o
n

M
e
t
h
o
d
2010 REPORT TO THE NATIONS ON OCCUPATIONAL FRAUD AND ABUSE | 17
Source of Tips
Not surprisingly, employees were the most common
source of fraud tips. However, customers, vendors, com-
petitors and acquaintances (i.e., non-company sources)
provided at least 34% of fraud tips, which suggests that
fraud reporting policies and programs should be publi-
cized not only to employees, but also to customers, ven-
dors and other external stakeholders.
Impact of Anonymous Reporting
Mechanisms (Hotlines)
While tips have consistently been the most common way
to detect fraud, the impact of tips is, if anything, understat-
ed by the fact that so many organizations fail to implement
fraud reporting systems. Such systems enable employees
to anonymously report fraud or misconduct by phone or
through a web-based portal.
6
The ability to report fraud
anonymously is key because employees often fear making
reports due to the threat of retaliation from superiors or
negative reactions from their peers. Also, most third-party
hotline systems offer programs to raise awareness about
how to report misconduct. Consequently, one would ex-
pect that the presence of a fraud hotline would enhance
fraud detection efforts and foster more tips.
This turns out to be true. As seen on page 18, the pres-
ence of fraud hotlines correlated with an increase in the
number of cases detected by a tip. In organizations that
had hotlines, 47% of frauds were detected by tips, while
in organizations without hotlines, only 34% of cases were
detected by tips. This is important because tips have
repeatedly been shown to be the most effective way to
catch fraud. The better an organization is at collecting and
responding to fraud tips, the better it should be at detect-
ing fraud and limiting losses.
In 67% of the cases where there was an anonymous
tip, that tip was reported through an organization’s fraud
hotline. This strongly suggests that hotlines are an effec-
tive way to encourage tips from employees who might oth-
erwise not report misconduct. Perhaps most important, as
noted on page 43, organizations that had fraud hotlines suf-
fered much smaller fraud losses than organizations without
hotlines. Those organizations also tended to detect frauds
seven months earlier than their counterparts.
6
For simplicity’s sake, we will refer to all reporting mechanisms as hotlines in this study.
0%
10%
20%
30%
40%
50%
P
e
r
p
e
t
r
a
t
o
r
's

A
c
q
u
a
i
n
t
a
n
c
e
C
o
m
p
e
t
i
t
o
r
S
h
a
r
e
h
o
l
d
e
r
/
O
w
n
e
r
V
e
n
d
o
r
A
n
o
n
y
m
o
u
s
C
u
s
t
o
m
e
r
E
m
p
l
o
y
e
e
49.2%
17.8%
13.4%
12.1%
3.7%
2.5%
1.8%
Source of Tips
P
e
r
c
e
n
t

o
f

T
i
p
s
Source of Tips
18 | 2010 REPORT TO THE NATIONS ON OCCUPATIONAL FRAUD AND ABUSE
Detection Methods Based on Organization Type
The chart on page 19 shows how frauds were detected based on the victim’s organization type. We see that privately
owned companies tended to have the fewest frauds detected by tip and the most frauds caught by accident, both of
which were also true in our 2008 study. Publicly held companies tended to detect more frauds by management review
and internal audit than their counterparts. Government agencies had the highest rate of detection by tips and had a pro-
portionately high rate of frauds caught through external audit.
Detecting Fraud in Small Businesses
Small businesses historically tend to suffer disproportionately high occupational fraud losses, according to our previ-
ous reports. The trend was not as pronounced in this study as in past years, but we still saw that 31% of all occupa-
tional frauds were committed against small businesses (the highest rate of any category) and the median loss in those
schemes was $155,000 (see page 29). One reason that small businesses are particularly good targets for occupational
fraud is that they tend to have far fewer anti-fraud controls than larger organizations (see page 39).
Detection of Fraud Schemes
Impact of Hotlines
0% 10% 20% 30% 40% 50%
Organizations With Hotlines
Organizations Without Hotlines
Confession
Notified by Police
IT Controls
External Audit
Surveillance/Monitoring
Document Examination
By Accident
Account Reconcilliation
Management Review
Internal Audit
Tip
Percent of Cases
D
e
t
e
c
t
i
o
n

M
e
t
h
o
d
47.1%
33.8%
15.7%
15.7%
16.5%
11.2%
4.6%
4.7%
7.8%
3.7%
1.4%
3.0%
1.0%
0.9%
1.4%
2.2%
2.3%
1.1%
0.4%
6.5%
7.3%
11.9%
2010 REPORT TO THE NATIONS ON OCCUPATIONAL FRAUD AND ABUSE | 19
When we look at how small businesses detect frauds, it is apparent that they catch a much lower proportion of schemes
through tips or internal audits than larger organizations. According to the chart on page 20, only 33% of small business
frauds are detected by a tip, and only 8% are detected by an internal audit. Additionally, a relatively large percentage
of frauds are caught by accident at small companies — nearly twice as many as at larger organizations. Many of these
discrepancies are likely due to the low rates of control implementation at small businesses.
Initial Detection Method by Organization Type
0% 10% 20% 30% 40% 50%
Government
Public Company
Private Company
Not-for-Profit
IT Controls
Confession
Notified by Police
Surveillance/Monitoring
External Audit
Document Examination
Account Reconcilliation
By Accident
Internal Audit
Management Review
Tip
Percent of Cases
D
e
t
e
c
t
i
o
n

M
e
t
h
o
d
43.2%
13.0%
10.7%
6.5%
8.9%
6.5%
6.5%
1.2%
1.8%
1.2%
0.6%
15.4%
11.6%
11.2%
8.2%
6.0%
5.2%
2.6%
2.5%
1.0%
0.5%
17.6%
16.7%
6.8%
3.9%
5.0%
2.3%
3.0%
1.2%
1.1%
1.2%
11.6%
15.1%
5.3%
4.6%
3.9%
7.4%
2.8%
1.4%
1.4%
0.4%
35.8%
41.1%
46.3%
20 | 2010 REPORT TO THE NATIONS ON OCCUPATIONAL FRAUD AND ABUSE
Detection of Fraud Schemes
Initial Detection of Frauds in Small Businesses
Detection of Occupational Fraud Based on Region
The following charts show how frauds were detected based on the region in which they occurred.
7
In every region, tips
were responsible for detecting the most occupational frauds by a wide margin. The percentage of cases detected by tips
ranged from a high of 50% (in Africa) to a low of 38% (in the United States). In all but two regions, management review
and internal audit were the second and third most common means of detection, following tips.
Detection in the United States — 1,001 Cases
7
See Appendix for a listing of countries included in each region.
0% 10% 20% 30% 40% 50%
100+ Employees
<100 Employees
IT Controls
Confession
Surveillance/Monitoring
Notified by Police
External Audit
Document Examination
Internal Audit
Account Reconcilliation
By Accident
Management Review
Tip
Percent of Cases
D
e
t
e
c
t
i
o
n

M
e
t
h
o
d
33.3%
43.4%
15.3%
15.8%
8.2%
16.0%
12.1%
9.2%
5.1%
7.9%
7.1%
2.1%
2.9%
1.7%
0.2%
2.7%
1.5%
0.7%
1.0%
4.1%
3.3%
6.4%
0% 10% 20% 30% 40% 50%
Confession
IT Controls
Surveillance/Monitoring
Notified by Police
External Audit
Document Examination
Account Reconciliation
By Accident
Internal Audit
Management Review
Tip 37.8%
17.1%
13.7%
9.3%
6.2%
6.2%
4.2%
1.7%
1.9%
0.8%
1.2%
Percent of Cases
D
e
t
e
c
t
i
o
n

M
e
t
h
o
d
2010 REPORT TO THE NATIONS ON OCCUPATIONAL FRAUD AND ABUSE | 21
Detection in Asia — 293 Cases
Detection in Europe — 155 Cases
0% 10% 20% 30% 40% 50%
IT Controls
Notified by Police
Confession
Surveillance/Monitoring
Document Examination
Account Reconciliation
External Audit
By Accident
Management Review
Internal Audit
Tip 42.3%
11.3%
14.3%
8.9%
5.5%
4.4%
5.8%
2.7%
1.7%
2.4%
0.7%
Percent of Cases
D
e
t
e
c
t
i
o
n

M
e
t
h
o
d
0% 10% 20% 30% 40% 50%
Confession
IT Controls
Notified by Police
Surveillance/Monitoring
External Audit
Document Examination
Account Reconciliation
By Accident
Management Review
Internal Audit
Tip 40.0%
16.1%
17.4%
6.5%
5.8%
5.2%
3.9%
3.2%
1.3%
0.0%
0.6%
Percent of Cases
D
e
t
e
c
t
i
o
n

M
e
t
h
o
d
22 | 2010 REPORT TO THE NATIONS ON OCCUPATIONAL FRAUD AND ABUSE
Detection of Fraud Schemes
Detection in Africa — 111 Cases
Detection in Canada — 97 Cases
0% 10% 20% 30% 40% 50%
IT Controls
Confession
Document Examination
External Audit
Notified by Police
Surveillance/Monitoring
Account Reconciliation
By Accident
Internal Audit
Management Review
Tip 49.5%
11.7%
9.9%
9.0%
6.3%
0.9%
1.8%
5.4%
4.5%
0.9%
0.0%
Percent of Cases
D
e
t
e
c
t
i
o
n

M
e
t
h
o
d
0% 10% 20% 30% 40% 50%
IT Controls
Confession
Notified by Police
Surveillance/Monitoring
External Audit
Document Examination
By Accident
Account Reconciliation
Internal Audit
Management Review
Tip 46.4%
15.5%
12.4%
5.2%
6.2%
4.1%
4.1%
4.1%
1.0%
1.0%
0.0%
Percent of Cases
D
e
t
e
c
t
i
o
n

M
e
t
h
o
d
2010 REPORT TO THE NATIONS ON OCCUPATIONAL FRAUD AND ABUSE | 23
Detection in Central/South America and the Caribbean — 70 Cases
Detection in Oceania — 40 Cases
0% 10% 20% 30% 40% 50%
IT Controls
By Accident
Notified by Police
Confession
Surveillance/Monitoring
Document Examination
Account Reconciliation
Internal Audit
External Audit
Management Review
Tip 44.3%
14.3%
10.0%
0.0%
8.6%
4.3%
12.9%
4.3%
0.0%
1.4%
0.0%
Percent of Cases
D
e
t
e
c
t
i
o
n

M
e
t
h
o
d
0% 10% 20% 30% 40% 50%
IT Controls
Confession
Notified by Police
Document Examination
External Audit
Account Reconciliation
Surveillance/Monitoring
Internal Audit
By Accident
Management Review
Tip 45.0%
20.0%
10.0%
12.5%
2.5%
0.0%
2.5%
7.5%
0.0%
0.0%
0.0%
Percent of Cases
D
e
t
e
c
t
i
o
n

M
e
t
h
o
d
24 | 2010 REPORT TO THE NATIONS ON OCCUPATIONAL FRAUD AND ABUSE
Geographical Location of Organizations
As mentioned previously, for the first time in the history
of our research on occupational fraud, we opened up our
study to include fraud cases investigated by CFEs out-
side the United States. As a result, the cases discussed in
this Report represent frauds perpetrated in 106 countries
around the world. We received information on the location
of 1,797 of the cases that were reported to us. Of these,
43% occurred outside the United States, providing us with
a true insight into the global plague of occupational fraud.
The chart below shows the number and median loss of
the cases reported to us, broken down by region. For vic-
tim organizations with locations in more than one coun-
try, we asked survey participants to choose the location
where the primary perpetrator was located. For example,
a fraud perpetrated at a European arm of a Japanese com-
pany would be classified as occurring in Europe. Similarly,
a case involving fraud perpetrated at the Canadian office
of a South American company would be considered a
fraud that occurred in Canada. The regional breakdowns
on case data throughout this Report should consequently
be read within this framework. Additionally, due to the
large number of U.S. cases reported, we separated North
America into the United States and Canada, and grouped
the remaining countries by continent.
Victim Organizations
Geographical Location of Victim Organizations
8
Region Number of Cases Percent of Cases Median Loss (in U.S. dollars)
United States 1,021 56.8% $105,000
Asia 298 16.6% $274,000
Europe 157 8.7% $600,000
Africa 112 6.2% $205,000
Canada 99 5.5% $125,000
Central/South America and the Caribbean 70 3.9% $186,000
Oceania 40 2.2% $338,000
8
See Appendix for a listing of countries included in each region.
As part of our survey, we asked
each respondent to provide
demogrupIIc InIormuLIon
ubouL LIe orgunIzuLIon LIuL
was defrauded.
Small organizations are particularly
vulnerable to fraud.
2010 REPORT TO THE NATIONS ON OCCUPATIONAL FRAUD AND ABUSE | 25
The following tables illustrate the frequency of the 11 occupational fraud schemes — financial statement fraud, corrup-
tion and the nine asset misappropriation sub-schemes — for each region.
9
United States — 1,021 Cases
Scheme
Number of
Cases
Percent of
Cases
Billing 282 27.6%
Corruption 224 21.9%
Check Tampering 173 16.9%
Skimming 165 16.2%
Non-Cash 160 15.7%
Expense Reimbursements 154 15.1%
Cash on Hand 117 11.5%
Payroll 108 10.6%
Cash Larceny 98 9.6%
Financial Statement Fraud 44 4.3%
Register Disbursements 25 2.4%
Europe — 157 Cases
Scheme
Number of
Cases
Percent of
Cases
Corruption 79 50.3%
Billing 41 26.1%
Non-Cash 31 19.7%
Expense Reimbursements 24 15.3%
Cash on Hand 23 14.6%
Skimming 17 10.8%
Cash Larceny 12 7.6%
Financial Statement Fraud 10 6.4%
Payroll 10 6.4%
Register Disbursements 7 4.5%
Check Tampering 5 3.2%
Asia — 298 Cases
Scheme
Number of
Cases
Percent of
Cases
Corruption 152 51.0%
Billing 56 18.8%
Non-Cash 55 18.5%
Expense Reimbursements 43 14.4%
Skimming 38 12.8%
Cash on Hand 34 11.4%
Cash Larceny 26 8.7%
Financial Statement Fraud 21 7.0%
Check Tampering 21 7.0%
Payroll 12 4.0%
Register Disbursements 6 2.0%
Africa — 112 Cases
Scheme
Number of
Cases
Percent of
Cases
Corruption 55 49.1%
Billing 38 33.9%
Non-Cash 24 21.4%
Expense Reimbursements 19 17.0%
Cash on Hand 16 14.3%
Cash Larceny 15 13.4%
Skimming 13 11.6%
Check Tampering 11 9.8%
Payroll 6 5.4%
Register Disbursements 3 2.7%
Financial Statement Fraud 2 1.8%
9
The sum of percentages in these tables exceeds 100% because several cases
involved schemes from more than one category.
26 | 2010 REPORT TO THE NATIONS ON OCCUPATIONAL FRAUD AND ABUSE
Corruption Cases by Region
Region Number of Corruption Cases Percent of all Cases in Region Median Loss
Asia 152 51.0% $330,000
Europe 79 50.3% $1,000,000
Africa 55 49.1% $208,000
Central/South America and the Caribbean 33 47.1% $250,000
Oceania 16 40.0% $800,000
United States 224 21.9% $175,000
Canada 21 21.2% $163,000
Victim Organizations
Canada — 99 Cases
Scheme
Number of
Cases
Percent of
Cases
Billing 21 21.2%
Corruption 21 21.2%
Expense Reimbursements 20 20.2%
Check Tampering 17 17.2%
Non-Cash 15 15.2%
Payroll 12 12.1%
Skimming 12 12.1%
Cash Larceny 10 10.1%
Cash on Hand 9 9.1%
Register Disbursements 8 8.1%
Financial Statement Fraud 2 2.0%
Oceania — 40 Cases
Scheme
Number of
Cases
Percent of
Cases
Corruption 16 40.0%
Non-Cash 12 30.0%
Billing 11 27.5%
Check Tampering 7 17.5%
Skimming 5 12.5%
Cash on Hand 4 10.0%
Expense Reimbursements 4 10.0%
Cash Larceny 3 7.5%
Payroll 2 5.0%
Register Disbursements 1 2.5%
Financial Statement Fraud 1 2.5%
Central/South America and the Caribbean
— 70 Cases
Scheme
Number of
Cases
Percent of
Cases
Corruption 33 47.1%
Billing 20 28.6%
Non-Cash 13 18.6%
Cash Larceny 10 14.3%
Skimming 9 12.9%
Cash on Hand 8 11.4%
Expense Reimbursements 8 11.4%
Financial Statement Fraud 7 10.0%
Check Tampering 6 8.6%
Payroll 3 4.3%
Register Disbursements 1 1.4%
Corruption Cases by Region
We compared the proportion and cost of cases involving
corruption among the regional categories in our study. The
results are presented in the following table.
Readers should keep in mind that this data does not neces-
sarily reflect overall corruption levels within each region; it
only reflects the specific fraud cases that were investigated
and reported to us by the CFEs who took part in our study.
2010 REPORT TO THE NATIONS ON OCCUPATIONAL FRAUD AND ABUSE | 27
Type of Organizations
More than 40% of victim organizations in our study were privately owned businesses, and nearly one-third were publicly
traded companies, meaning that almost three-quarters of the victims represented in our study came from for-profit enter-
prises. Sixteen percent of the frauds reported to us occurred at government agencies. Not-for-profit organizations were the
least represented category, with less than 10% of frauds taking place at these entities.
In addition to experiencing the most frauds, private and public companies were also victim to the costliest schemes in
our study; the median loss for the cases at these businesses was $231,000 and $200,000, respectively (see page 28).
In contrast, the losses experienced by government agencies and not-for-profit organizations were about half as much.
Government agencies had a median loss of $100,000, while not-for-profits lost a median of $90,000.
Organization Type of Victim — Frequency
0% 10% 20% 30% 40% 50%
2010
2008
Not-for-Profit
Government
Public Company
Private Company
39.1%
28.4%
32.1%
14.3%
42.1%
16.3%
18.1%
9.6%
Percent of Cases
T
y
p
e

o
f

V
i
c
t
i
m

O
r
g
a
n
i
z
a
t
i
o
n
28 | 2010 REPORT TO THE NATIONS ON OCCUPATIONAL FRAUD AND ABUSE
Victim Organizations
Organization Type of Victim — Median Loss
Continuing the trend observed in our prior studies, small
organizations — those with fewer than 100 employees —
suffered the greatest percentage of the frauds in our 2010
study, accounting for more than 30% of the victim orga-
nizations. However, the variation between size categories
is relatively small, with 23% of victims having between
100 and 999 employees, 26% having 1,000 to 9,999 em-
ployees and 21% having more than 10,000 employees.
This relatively small disparity contrasts with our previous
studies, in which small organizations were involved in a
much higher percent of frauds than any other category.
Additionally, our research has historically shown that
smaller organizations suffer disproportionately large loss-
es due to occupational fraud. Organizations with fewer
than 100 employees experienced the greatest median
loss of all categories of victim organizations in our 2008
study. The same was true in our 2006 study. However,
that was not the case when we looked at the full body
of data from our current survey. Consequently, we under-
took additional analyses to see what effect, if any, the in-
clusion of cases from countries outside the United States
had on these findings.
Size of Organizations
$0 $50,000 $100,000 $150,000 $200,000 $250,000 $300,000
2010
2008
Not-for-Profit
Government
Public Company
Private Company
$231,000
$278,000
$200,000
$142,000
$100,000
$100,000
$109,000
$90,000
Median Loss
T
y
p
e

o
f

V
i
c
t
i
m

O
r
g
a
n
i
z
a
t
i
o
n
2010 REPORT TO THE NATIONS ON OCCUPATIONAL FRAUD AND ABUSE | 29
Size of Victim Organization — Frequency
Size of Victim Organization — Median Loss
$0 $50,000 $100,000 $150,000 $200,000
2010
2008
10,000+
1,000 — 9,999
100 — 999
<100
$155,000
$200,000
$200,000
$176,000
$139,000
$116,000
$147,000
$164,000
Median Loss
N
u
m
b
e
r

o
f

E
m
p
l
o
y
e
e
s
0% 5% 10% 15% 20% 25% 30% 35% 40%
2010
2008
10,000+
1,000 — 9,999
100 — 999
<100
38.2%
20.0%
22.8%
18.9%
30.8%
25.9%
23.0%
20.6%
Percent of Cases
N
u
m
b
e
r

o
f

E
m
p
l
o
y
e
e
s
30 | 2010 REPORT TO THE NATIONS ON OCCUPATIONAL FRAUD AND ABUSE
Victim Organizations
If we make a direct comparison of the U.S. cases from our current study to the data from 2008, we can see that, though
the median loss in each category is smaller absolutely, the median losses suffered by the smallest organizations are
greater than those suffered by larger organizations. This finding is similar to our observations in previous studies and
suggests that small companies in the United States are indeed disproportionately harmed by occupational fraud.
Size of Victim Organization (U.S. cases only) — Median Loss
An analysis of the nature of losses at small businesses becomes more interesting when we expand our examination to each
region represented. For the frauds perpetrated in Europe, Asia, Canada and the United States, the median losses were signifi-
cantly greater at small organizations than at those with more than 100 employees. Conversely, the median losses experienced by
small organizations in Central/South America and the Caribbean, Africa and Oceania were notably less than those experienced
by their larger counterparts.
$0 $50,000 $100,000 $150,000 $200,000
2010 (U.S. only)
2008
10,000+
1,000 — 9,999
100 — 999
<100
$150,000
$200,000
$150,000
$176,000
$60,000
$116,000
$147,000
$84,000
Median Loss
N
u
m
b
e
r

o
f

E
m
p
l
o
y
e
e
s
2010 REPORT TO THE NATIONS ON OCCUPATIONAL FRAUD AND ABUSE | 31
Size of Victim Organizations — Median Loss by Region
Methods of Fraud in Small Businesses
Because the challenges faced by small businesses in
combating occupational fraud are numerous and unique,
it is helpful to know the types of frauds that are most
prevalent within these organizations. Such observations
may help small businesses target their limited resources
to those areas that pose the greatest risk.
Of course, the specific risks faced by any organization are
largely dependent on its particular industry, operating envi-
ronment, processes, culture and many other factors. None-
theless, examining which fraud schemes are most com-
monly perpetrated at small companies can aid us in better
understanding the fraud issues faced by these businesses.
Small Businesses
(<100 Employees) — 537 Cases
Scheme
Number of
Cases
Percent of
Cases
10
Billing 154 28.7%
Check Tampering 140 26.1%
Corruption 137 25.5%
Skimming 116 21.6%
Expense Reimbursements 90 16.8%
Non-Cash 80 14.9%
Cash on Hand 79 14.7%
Payroll 72 13.4%
Larceny 66 12.3%
Financial Statement Fraud 30 5.6%
10
The sum of percentages in this table exceeds 100% because several cases involved
schemes from more than one category.
$0 $200,000 $400,000 $600,000 $800,000 $1,000,000
100+ Employees
<100 Employees
Oceania
Africa
Central/South America
and the Caribbean
United States
Canada
Asia
Europe
Median Loss
R
e
g
i
o
n
$513,000
$250,000
$387,000
$200,000
$200,000
$258,000
$195,000
$574,000
$110,000
$80,000
$150,000
$135,000
$65,000
$875,000
32 | 2010 REPORT TO THE NATIONS ON OCCUPATIONAL FRAUD AND ABUSE
Victim Organizations
As the chart below illustrates, check tampering schemes were much more common at small organizations than at all
other entities. Skimming and payroll frauds were also more common in small organizations. These trends stand to rea-
son, as the functions affected by such schemes — the check writing, cash collection and payroll functions, respectively
— are more likely to be performed by a single individual, such as a bookkeeper, and are often subject to less oversight
within a small organization than in a large company where duties are more segregated and authorization of transactions
is more formalized. In contrast, although corruption schemes were the third most common fraud scheme faced by small
businesses, they were less frequent within small companies than in bigger organizations.
Methods of Fraud by Size of Victim Organization
0% 5% 10% 15% 20% 25% 30% 35% 40%
<100 Employees
100+ Employees
Register Disbursements
Financial Statement Fraud
Larceny
Payroll
Cash on Hand
Non-Cash
Expense Reimbursement
Skimming
Corruption
Check Tampering
Billing
Percent of Cases
T
y
p
e

o
f

S
c
h
e
m
e
28.7%
24.9%
26.1%
8.0%
25.5%
35.2%
21.6%
16.8%
14.2%
14.9%
14.7%
13.4%
12.3%
5.6%
3.0%
6.5%
8.4%
4.5%
2.9%
18.1%
10.7%
11.0%
2010 REPORT TO THE NATIONS ON OCCUPATIONAL FRAUD AND ABUSE | 33
Industry of Organizations
We looked at the industry classification of the organizations victimized by the fraud cases in our study. It is important to view
this data as a representation of the companies that had CFEs investigate internal fraud cases within the last two years, rather
than as an indication of which industries are more or less likely to be victimized by fraud. However, the following tables do
draw attention to some differences in the frequency and cost associated with occupational frauds among different sectors.
For example, the banking and financial services industry had the most cases, accounting for more than 16% of the frauds
reported to us. The period of time covered by our survey — calendar years 2008 and 2009 — was filled with news stories of
fraud in the banking sector, so this finding is not unexpected. In contrast, the mining industry experienced the fewest frauds
in our study, but those cases caused a median loss of $1 million — by far the largest of any of the industries we examined.
11
Industry of Victim Organizations
(sorted by Frequency)
Industry
Number
of Cases
Percent
of Cases
Median
Loss
Banking/Financial Services 298 16.6% $175,000
Manufacturing 193 10.7% $300,000
Government and Public
Administration
176 9.8% $81,000
Retail 119 6.6% $85,000
Healthcare 107 5.9% $150,000
Insurance 91 5.1% $197,000
Education 90 5.0% $71,000
Services (other) 88 4.9% $109,000
Construction 77 4.3% $200,000
Technology 65 3.6% $250,000
Transportation and
Warehousing
62 3.4% $300,000
Oil and Gas 57 3.2% $478,000
Real Estate 57 3.2% $475,000
Services (professional) 51 2.8% $110,000
Arts, Entertainment and
Recreation
49 2.7% $180,000
Utilities 45 2.5% $120,000
Wholesale Trade 42 2.3% $513,000
Religious, Charitable or
Social Services
41 2.3% $75,000
Telecommunications 37 2.1% $131,000
Agriculture, Forestry, Fishing
and Hunting
27 1.5% $320,000
Communications/Publishing 16 0.9% $110,000
Mining 12 0.7% $1,000,000
Industry of Victim Organizations
(sorted by Median Loss)
Industry
Number
of Cases
Percent
of Cases
Median
Loss
Mining 12 0.7% $1,000,000
Wholesale Trade 42 2.3% $513,000
Oil and Gas 57 3.2% $478,000
Real Estate 57 3.2% $475,000
Agriculture, Forestry, Fishing
and Hunting
27 1.5% $320,000
Manufacturing 193 10.7% $300,000
Transportation and
Warehousing
62 3.4% $300,000
Technology 65 3.6% $250,000
Construction 77 4.3% $200,000
Insurance 91 5.1% $197,000
Arts, Entertainment and
Recreation
49 2.7% $180,000
Banking/Financial Services 298 16.6% $175,000
Healthcare 107 5.9% $150,000
Telecommunications 37 2.1% $131,000
Utilities 45 2.5% $120,000
Services (professional) 51 2.8% $110,000
Communications/Publishing 16 0.9% $110,000
Services (other) 88 4.9% $109,000
Retail 119 6.6% $85,000
Government and Public
Administration
176 9.8% $81,000
Religious, Charitable or Social
Services
41 2.3% $75,000
Education 90 5.0% $71,000
11
There was a small sample of only 12 cases in this industry, which may impact the reliability of the median loss data.
34 | 2010 REPORT TO THE NATIONS ON OCCUPATIONAL FRAUD AND ABUSE
Banking/Financial Services — 298 Cases
Scheme Number of Cases Percent of Cases
Corruption 101 33.9%
Cash on Hand 64 21.5%
Billing 37 12.4%
Check Tampering 35 11.7%
Non-Cash 33 11.1%
Skimming 32 10.7%
Larceny 29 9.7%
Expense
Reimbursements
20 6.7%
Financial Statement Fraud 16 5.4%
Payroll 9 3.0%
Register Disbursements 8 2.7%
Government and Public
Administration — 176 Cases
Scheme Number of Cases Percent of Cases
Corruption 57 32.4%
Billing 43 24.4%
Expense
Reimbursements
32 18.2%
Non-Cash 30 17.0%
Larceny 25 14.2%
Check Tampering 24 13.6%
Skimming 23 13.1%
Cash on Hand 21 11.9%
Payroll 20 11.4%
Financial Statement Fraud 5 2.8%
Register Disbursements 5 2.8%
Manufacturing — 193 Cases
Scheme Number of Cases Percent of Cases
Corruption 75 38.9%
Billing 73 37.8%
Non-Cash 45 23.3%
Expense
Reimbursements
43 22.3%
Check Tampering 22 11.4%
Skimming 20 10.4%
Payroll 20 10.4%
Cash on Hand 15 7.8%
Larceny 14 7.3%
Financial Statement Fraud 14 7.3%
Register Disbursements 2 1.0%
Retail — 119 Cases
Scheme Number of Cases Percent of Cases
Non-Cash 39 32.8%
Corruption 26 21.8%
Skimming 19 16.0%
Larceny 17 14.3%
Billing 16 13.4%
Cash on Hand 16 13.4%
Register Disbursements 14 11.8%
Check Tampering 10 8.4%
Expense
Reimbursements
8 6.7%
Financial Statement Fraud 7 5.9%
Payroll 3 2.5%
12
The sum of percentages in these tables exceeds 100% because several cases
involved schemes from more than one category.
Victim Organizations
In the following tables, we have presented the distribution of fraud schemes for all industries in which there were more
than 50 reported cases.
12
Many of the findings are not surprising. For example, theft of cash on hand — which includes the
theft of cash from a bank vault — accounted for just 12% of all cases combined, but occurred in 22% of the cases involv-
ing the banking and financial services industry. Similarly, both theft of non-cash assets and fraudulent register disburse-
ments were much more common in the retail industry than in other sectors. This makes sense, as retail establishments
tend to have more inventory- and cash-register-based transactions than entities in other industries. Examining the variation
in schemes among industries underscores the need for organizations to consider the specific fraud risks they face when
determining which processes and functions merit additional resources devoted to fraud prevention and detection.
2010 REPORT TO THE NATIONS ON OCCUPATIONAL FRAUD AND ABUSE | 35
Healthcare — 107 Cases
Scheme Number of Cases Percent of Cases
Corruption 31 29.0%
Skimming 24 22.4%
Billing 23 21.5%
Non-Cash 21 19.6%
Check Tampering 13 12.1%
Expense
Reimbursements
12 11.2%
Payroll 10 9.3%
Cash on Hand 9 8.4%
Larceny 8 7.5%
Financial Statement Fraud 4 3.7%
Register Disbursements 1 0.9%
Education — 90 Cases
Scheme Number of Cases Percent of Cases
Billing 38 42.2%
Corruption 22 24.4%
Skimming 19 21.1%
Expense
Reimbursements
15 16.7%
Non-Cash 11 12.2%
Larceny 11 12.2%
Payroll 9 10.0%
Check Tampering 7 7.8%
Cash on Hand 7 7.8%
Financial Statement Fraud 1 1.1%
Register Disbursements 0 0.0%
Construction — 77 Cases
Scheme Number of Cases Percent of Cases
Corruption 35 45.5%
Billing 23 29.9%
Check Tampering 14 18.2%
Skimming 12 15.6%
Non-Cash 12 15.6%
Expense
Reimbursements
10 13.0%
Payroll 7 9.1%
Larceny 7 9.1%
Financial Statement Fraud 4 5.2%
Cash on Hand 3 3.9%
Register Disbursements 0 0.0%
Insurance — 91 Cases
Scheme Number of Cases Percent of Cases
Corruption 30 33.0%
Billing 19 20.9%
Check Tampering 15 16.5%
Skimming 13 14.3%
Non-Cash 9 9.9%
Cash on Hand 9 9.9%
Larceny 8 8.8%
Expense
Reimbursements
7 7.7%
Payroll 6 6.6%
Financial Statement Fraud 3 3.3%
Register Disbursements 3 3.3%
Services (other) — 88 Cases
Scheme Number of Cases Percent of Cases
Corruption 25 28.4%
Skimming 22 25.0%
Billing 22 25.0%
Check Tampering 14 15.9%
Payroll 13 14.8%
Expense
Reimbursements
12 13.6%
Non-Cash 11 12.5%
Larceny 9 10.2%
Cash on Hand 8 9.1%
Financial Statement Fraud 7 8.0%
Register Disbursements 5 5.7%
Technology — 65 Cases
Scheme Number of Cases Percent of Cases
Corruption 28 43.1%
Billing 19 29.2%
Expense
Reimbursements
17 26.2%
Non-Cash 16 24.6%
Check Tampering 10 15.4%
Financial Statement Fraud 10 15.4%
Skimming 6 9.2%
Cash on Hand 5 7.7%
Payroll 4 6.2%
Larceny 4 6.2%
Register Disbursements 2 3.1%
36 | 2010 REPORT TO THE NATIONS ON OCCUPATIONAL FRAUD AND ABUSE
Transportation and Warehousing — 62 Cases
Scheme Number of Cases Percent of Cases
Corruption 22 35.5%
Billing 20 32.3%
Non-Cash 16 25.8%
Payroll 9 14.5%
Skimming 8 12.9%
Larceny 7 11.3%
Financial Statement
Fraud
5 8.1%
Check Tampering 5 8.1%
Expense
Reimbursements
5 8.1%
Cash on Hand 4 6.5%
Register Disbursements 0 0.0%
Real Estate — 57 Cases
Scheme Number of Cases Percent of Cases
Billing 19 33.3%
Check Tampering 18 31.6%
Corruption 12 21.1%
Expense
Reiumbursements
12 21.1%
Skimming 11 19.3%
Larceny 9 15.8%
Payroll 8 14.0%
Cash on Hand 8 14.0%
Non-Cash 7 12.3%
Financial Statement
Fraud
2 3.5%
Register Disbursements 0 0.0%
Oil and Gas — 57 Cases
Scheme Number of Cases Percent of Cases
Corruption 31 54.4%
Billing 18 31.6%
Expense
Reimbursements
9 15.8%
Non-Cash 8 14.0%
Check Tampering 6 10.5%
Skimming 4 7.0%
Cash on Hand 4 7.0%
Larceny 3 5.3%
Financial Statement
Fraud
2 3.5%
Payroll 2 3.5%
Register Disbursements 0 0.0%
Services (professional) — 51 Cases
Scheme Number of Cases Percent of Cases
Billing 15 29.4%
Expense
Reiumbursements
14 27.5%
Check Tampering 12 23.5%
Skimming 9 17.6%
Corruption 6 11.8%
Payroll 5 9.8%
Cash on Hand 5 9.8%
Larceny 5 9.8%
Financial Statement
Fraud
4 7.8%
Non-Cash 2 3.9%
Register Disbursements 0 0.0%
Victim Organizations
2010 REPORT TO THE NATIONS ON OCCUPATIONAL FRAUD AND ABUSE | 37
Corruption Cases by Industry
Just as corruption is often observed to be particularly prominent in specific regions, certain industries are frequently
thought to be more susceptible to corrupt business practices than others. For example, the mining, oil and gas, and con-
struction industries all appear in the top five sectors for both bribery and state capture (two types of corrupt practices)
in Transparency International’s 2008 Bribe Payers Index.
13
These three industries had three of the four highest rates of
corruption cases in our study. More than 45% of the frauds that occurred in these industries, along with those in the
wholesale trade sector, involved some form of corruption.
Corruption Cases by Industry
Industry Number of Cases Number of Corruption Cases Percent of Corruption Cases
Mining 12 7 58.3%
Oil and Gas 57 31 54.4%
Wholesale Trade 42 20 47.6%
Construction 77 35 45.5%
Technology 65 28 43.1%
Manufacturing 193 75 38.9%
Agriculture, Forestry, Fishing and Hunting 27 10 37.0%
Utilities 45 16 35.6%
Transportation and Warehousing 62 22 35.5%
Banking/Financial Services 298 101 33.9%
Insurance 91 30 33.0%
Government and Public Administration 176 57 32.4%
Communications/Publishing 16 5 31.3%
Healthcare 107 31 29.0%
Services (other) 88 25 28.4%
Arts, Entertainment and Recreation 49 13 26.5%
Education 90 22 24.4%
Retail 119 26 21.8%
Telecommunications 37 8 21.6%
Real Estate 27 12 21.1%
Religious, Charitable or Social Services 41 6 14.6%
Services (professional) 51 6 11.8%
13
Transparency International, 2008 Bribe Payers Index (Berlin: Transparency International, 2008). http://www.transparency.org/content/download/39275/622457
38 | 2010 REPORT TO THE NATIONS ON OCCUPATIONAL FRAUD AND ABUSE
Anti-Fraud Controls at Victim Organizations
We asked survey participants which of several common anti-fraud controls were in place at the victim organization during
the perpetration of the fraud. A distinction should be made between the following data and the prior discussion on fraud
detection methods. The following analysis covers the mere presence of each control — not necessarily its role in detect-
ing the fraud once it started. More than three-quarters of the victim organizations in our study had their financial statements
audited by external auditors, while two-thirds had dedicated internal audit or fraud examination departments, and almost 60%
had independent audits of their internal controls over financial reporting. Additionally, nearly 70% of the organizations had a
formal code of conduct in place at the time of the fraud, though only 39% extended that to include a formal anti-fraud policy.
As mentioned in our discussion on fraud detection methods (see page 16), tips are the number one means by which fraud
is detected. However, less than half of the victim organizations in our study had a hotline in place at the time the fraud oc-
curred. There is evidence that the presence of a hotline improves organizations’ ability to detect fraud and limit fraud losses
(see page 43), which should cause more organizations to implement fraud hotlines.
Victim Organizations
Frequency of Anti-Fraud Controls
14
14
The sum of percentages in this chart exceeds 100% because many victim organizations had more than one anti-fraud control in place at the time of the fraud.
15
KEY:
External Audit of F/S = Independent external audits of the organization’s financial statements t
Internal Audit / FE Department = Internal audit department or fraud examination department t
External Audit of ICOFR = Independent audits of the organization’s internal controls over financial reporting t
Management Certification of F/S = Management certification of the organization’s financial statements t
0% 10% 20% 30% 40% 50% 60% 70% 80%
Rewards for Whistleblowers
Job Rotation/Mandatory Vacation
Surprise Audits
Anti-Fraud Policy
Fraud Training for Employees
Fraud Training for Managers/Executives
Employee Support Programs
Hotline
Independent Audit Committee
Management Review
Management Certification of F/S
External Audit of ICOFR
Internal Audit/FE Department
Code of Conduct
External Audit of F/S 76.1%
69.9%
66.4%
59.3%
58.9%
53.3%
53.2%
48.6%
44.8%
41.5%
39.6%
39.0%
28.9%
14.6%
7.4%
Percent of Cases
A
n
t
i
-
F
r
a
u
d

C
o
n
t
r
o
l
1
5
2010 REPORT TO THE NATIONS ON OCCUPATIONAL FRAUD AND ABUSE | 39
Anti-Fraud Controls at Small Businesses
We have long hypothesized that many small companies are particularly susceptible to fraud at least partially due to the
limited resources they devote to anti-fraud controls. To test this theory, we compared the presence of anti-fraud controls at
those companies with fewer than 100 employees to the controls at companies with more than 100 employees. Our findings
confirm what we suspected: The small companies in our study did indeed have fewer controls in place than the larger orga-
nizations, a factor that may contribute to the disproportionate impact of fraud on these companies. While discrepancies in
levels of certain controls are somewhat expected given the associated costs or resources required to enact them, the gap
between controls in small businesses as opposed to larger organizations is striking. For example, it would be expected that
small businesses would have a lower rate of external audits and that fewer small companies would have a formal internal
audit or fraud examination function. But even less expensive controls were often absent in small businesses. While 64% of
large companies had some sort of management review of controls, processes, accounts or transactions, less than half as
many small businesses had the same type of monitoring in place. Likewise, formal codes of conduct and anti-fraud policies
cost very little to implement, but serve as an effective way to make a clear and explicit statement against fraudulent and
unethical conduct within an organization. Yet only 41% and 16% of small businesses had these policies (respectively) in
place when the fraud occurred — numbers dwarfed by the 83% and 50% rates of larger organizations.
Perhaps most concerning is that only 15% of small businesses had a hotline in place, compared to 64% of larger orga-
nizations. As previously discussed, our research shows that hotlines are consistently the most effective fraud detection
method. Further, as discussed on page 43, the median loss for frauds at companies with hotlines was 59% smaller than
the median loss for frauds at organizations without such a mechanism. Arguably, enacting hotlines would go a long way
in helping small-business owners protect their assets from dishonest employees.
Frequency of Anti-Fraud Controls by Size of Victim Organization
0% 20% 40% 60% 80% 100%
100+ Employees
<100 Employees
Rewards for Whistleblowers
Job Rotation/Mandatory Vacation
Surprise Audits
Fraud Training for Employees
Hotline
Anti-Fraud Policy
Fraud Training for Managers/Executives
Employee Support Programs
Independent Audit Committee
External Audit of ICOFR
Internal Audit/FE Department
Management Review
Management Certification of F/S
Code of Conduct
External Audit of F/S
88.0%
51.8%
41.2%
32.6%
30.5%
29.6%
28.5%
22.7%
18.8%
15.6%
15.5%
15.1%
13.4%
11.4%
6.1%
2.8%
83.2%
71.7%
63.8%
82.6%
73.2%
67.4%
57.4%
53.1%
50.0%
64.2%
51.4%
36.9%
18.3%
9.3%
Percent of Cases
A
n
t
i
-
F
r
a
u
d

C
o
n
t
r
o
l
40 | 2010 REPORT TO THE NATIONS ON OCCUPATIONAL FRAUD AND ABUSE
Anti-Fraud Controls by Region
To examine how organizations in different regions approached the fight against fraud, we analyzed the presence of
controls in victim organizations based on where they were located. The following tables illustrate the percentage of
organizations within each region that had the corresponding control in place at the time of the fraud.
It is interesting to note the variations in use of controls by region. Specifically, for some anti-fraud controls, the propor-
tion of victim organizations utilizing the control was markedly greater in regions containing developing countries than in
those regions primarily made up of developed nations. For example, the organizations in Central/South America and the
Caribbean had the highest rate of external audits of both financial statements and internal controls over financial report-
ing, as well as of hotlines. Similarly, codes of conduct, internal audit or fraud examination departments, management
certification of financial statements, independent audit committees, anti-fraud policies and rewards for whistleblowers
were all most common among the African organizations in our study, and management review, surprise audits and job
rotation or mandatory vacation policies were most often implemented by Asian organizations. On the opposite end of
the spectrum, the United States had the lowest rate of presence for several of these controls.
Victim Organizations
External Audit of Financial Statements
Region Percent of Cases
Central/South America and the Caribbean 87.1%
Europe 86.0%
Africa 85.7%
Asia 83.9%
Canada 80.8%
Oceania 75.0%
United States 70.4%
Internal Audit/Fraud Examination Department
Region Percent of Cases
Africa 84.8%
Europe 76.4%
Asia 73.2%
Central/South America and the Caribbean 72.9%
Canada 61.6%
United States 60.9%
Oceania 50.0%
Code of Conduct
Region Percent of Cases
Africa 80.4%
Central/South America and the Caribbean 74.3%
Europe 73.9%
Canada 73.7%
Oceania 72.5%
Asia 68.5%
United States 68.0%
External Audit of ICOFR
16
Region Percent of Cases
Central/South America and the Caribbean 65.7%
Asia 64.4%
Africa 64.3%
United States 58.2%
Canada 57.6%
Europe 56.7%
Oceania 52.5%
16
External Audit of ICOFR = Independent audits of the organization’s internal controls
over financial reporting.
2010 REPORT TO THE NATIONS ON OCCUPATIONAL FRAUD AND ABUSE | 41
Management Certification
of Financial Statements
Region Percent of Cases
Africa 68.8%
Canada 65.7%
Oceania 65.0%
Asia 62.8%
Europe 62.4%
United States 56.0%
Central/South America and Caribbean 51.4%
Independent Audit Committee
Region Percent of Cases
Africa 63.4%
Canada 59.6%
Oceania 57.5%
Asia 54.7%
Central/South America and Caribbean 54.3%
Europe 54.1%
United States 50.8%
Employee Support Programs
Region Percent of Cases
Canada 57.6%
United States 54.8%
Oceania 45.0%
Africa 38.4%
Central/South America and Caribbean 30.0%
Europe 28.0%
Asia 22.5%
Fraud Training for Employees
Region Percent of Cases
United States 42.7%
Africa 39.3%
Europe 37.6%
Asia 37.2%
Central/South America and Caribbean 32.9%
Canada 29.3%
Oceania 22.5%
Management Review
Region Percent of Cases
Asia 59.4%
Europe 54.8%
Canada 53.5%
Africa 52.7%
Oceania 52.5%
United States 51.6%
Central/South America and Caribbean 50.0%
Hotline
Region Percent of Cases
Central/South America and Caribbean 52.9%
United States 52.0%
Africa 47.3%
Europe 45.9%
Asia 43.3%
Canada 41.4%
Oceania 25.0%
Fraud Training for
Managers/Executives
Region Percent of Cases
United States 44.5%
Africa 41.1%
Asia 40.9%
Europe 37.6%
Central/South America and Caribbean 37.1%
Canada 30.3%
Oceania 25.0%
Anti-Fraud Policy
Region Percent of Cases
Africa 49.1%
United States 38.7%
Central/South America and Caribbean 38.6%
Canada 38.4%
Asia 36.6%
Europe 36.3%
Oceania 32.5%
42 | 2010 REPORT TO THE NATIONS ON OCCUPATIONAL FRAUD AND ABUSE
Surprise Audits
Region Percent of Cases
Asia 39.3%
Africa 30.4%
Canada 28.3%
United States 27.2%
Europe 24.8%
Central/South America and Caribbean 24.3%
Oceania 15.0%
Rewards for Whistleblowers
Region Percent of Cases
Africa 9.8%
Asia 9.4%
United States 7.4%
Central/South America and Caribbean 5.7%
Canada 4.0%
Europe 3.8%
Oceania 2.5%
Job Rotation/Mandatory Vacation
Region Percent of Cases
Asia 21.8%
Africa 20.5%
Europe 14.0%
Canada 13.1%
United States 12.6%
Central/South America and Caribbean 11.4%
Oceania 5.0%
Victim Organizations
Effectiveness of Controls
We compared the median loss experienced by those organizations that had a particular anti-fraud control against the
median loss for those organizations without that control at the time of the fraud. Hotlines were the control with the great-
est associated reduction in median loss, reinforcing their value as an effective anti-fraud measure. Employee support
programs, surprise audits and fraud training for staff members at all levels were also associated with median loss reduc-
tions of more than 50%. Interestingly, financial statement audits — the most commonly implemented control — was
among the controls with the smallest associated reduction in median loss.
2010 REPORT TO THE NATIONS ON OCCUPATIONAL FRAUD AND ABUSE | 43
Median Loss Based on Presence of Anti-Fraud Controls
Control
17
Percent of Cases Implemented Control in Place Control Not in Place Percent Reduction
Hotline 48.6% $100,000 $245,000 59.2%
Employee Support Programs 44.8% $100,000 $244,000 59.0%
Surprise Audits 28.9% $97,000 $200,000 51.5%
Fraud Training for Employees 39.6% $100,000 $200,000 50.0%
Fraud Training for Managers/Execs 41.5% $100,000 $200,000 50.0%
Job Rotation/Mandatory Vacation 14.6% $100,000 $188,000 46.8%
Code of Conduct 69.9% $140,000 $262,000 46.6%
Anti-Fraud Policy 39.0% $120,000 $200,000 40.0%
Management Review 53.3% $120,000 $200,000 40.0%
External Audit of ICOFR 59.3% $140,000 $215,000 34.9%
Internal Audit/FE Department 66.4% $145,000 $209,000 30.6%
Independent Audit Committee 53.2% $140,000 $200,000 30.0%
Management Certification of F/S 58.9% $150,000 $200,000 25.0%
External Audit of F/S 76.1% $150,000 $200,000 25.0%
Rewards for Whistleblowers 7.4% $119,000 $155,000 23.2%
Similarly, we compared the duration of fraud schemes at organizations with and without anti-fraud controls. As reflected
in the table below, the presence of each control correlated with a reduction in the duration of fraud. We found it interest-
ing that the controls associated with the greatest reduction in scheme lengths are not the same as the ones that had the
most impact on median loss.
Duration Based on Presence of Anti-Fraud Controls
Control
17
Percent of Cases Implemented Control in Place Control Not in Place Percent Reduction
Management Review 53.3% 12 months 24 months 50.0%
Internal Audit/FE Department 66.4% 14 months 24 months 41.7%
External Audit of ICOFR 59.3% 15 months 24 months 37.5%
Code of Conduct 69.9% 15 months 24 months 37.5%
Surprise Audits 28.9% 12 months 19 months 36.8%
Hotline 48.6% 13 months 20 months 35.0%
Management Certification of F/S 58.9% 15 months 23 months 34.8%
Rewards for Whistleblowers 7.4% 12 months 18 months 33.3%
Job Rotation/Mandatory Vacation 14.6% 12 months 18 months 33.3%
External Audit of F/S 76.1% 16 months 24 months 33.3%
Anti-Fraud Policy 39.0% 13 months 18 months 27.8%
Fraud Training for Employees 39.6% 13 months 18 months 27.8%
Fraud Training for Managers/Execs 41.5% 13 months 18 months 27.8%
Independent Audit Committee 53.2% 15 months 20 months 25.0%
Employee Support Programs 44.8% 15 months 18 months 16.7%
17
KEY:
External Audit of F/S = Independent external audits of the organization’s financial statements t
Internal Audit / FE Department = Internal audit department or fraud examination department t
External Audit of ICOFR = Independent audits of the organization’s internal controls over financial reporting t
Management Certification of F/S = Management certification of the organization’s financial statements t
44 | 2010 REPORT TO THE NATIONS ON OCCUPATIONAL FRAUD AND ABUSE
Importance of Controls in Detecting or Limiting Fraud
Not all controls are effective against all frauds. Most control mechanisms are more likely to detect or deter some fraud
schemes than others. Likewise, some perpetrators are more adept than others at circumventing particular controls, and
some controls are more susceptible to being overridden than others.
We thought it useful to examine which controls had the greatest effect on the frauds reported in our study. We asked the
CFEs who took part in our survey to rank the importance of several anti-fraud controls in detecting or limiting the fraud.
The following chart shows the respondents’ opinions regarding each control’s usefulness.
Victim Organizations
Importance of Control in Detecting or Limiting Fraud
18
KEY:
External Audit of F/S = Independent external audits of the organization’s financial statements t
Internal Audit / FE Department = Internal audit department or fraud examination department t
External Audit of ICOFR = Independent audits of the organization’s internal controls over financial reporting t
Management Certification of F/S = Management certification of the organization’s financial statements t
0% 10% 20% 30% 40% 50% 60% 70% 80%
Not at all Important
Somewhat Important
Very Important
External Audit of F/S
External Audit
of ICOFR
Rewards for
Whistleblowers
Hotline
Job Rotation/
Mandatory Vacation
Surprise Audits
Management Review
Internal Audit/
FE Department
Percent of Respondents
C
o
n
t
r
o
l
1
8
60.8%
50.3%
49.0%
42.0%
41.3%
38.3%
36.0%
32.4%
29.4%
31.5%
40.7%
45.4%
27.9%
23.0%
24.5%
17.9%
25.3%
21.4%
25.7%
25.3%
31.2%
19.3%
23.5%
19.2%
2010 REPORT TO THE NATIONS ON OCCUPATIONAL FRAUD AND ABUSE | 45
Control Weaknesses That Contributed to Fraud
We also asked survey respondents to identify which of several common issues they considered to be the primary factor that
allowed the fraud to occur. A lack of internal controls, such as segregation of duties, was cited as the biggest deficiency in 38%
of the cases. In more than 19% of the cases, internal controls were in place but were overridden by the perpetrator or perpetra-
tors in order to commit and conceal the fraud. Interestingly, even though hotlines are consistently the most effective detective
control mechanism, and even though less than half of the victim organizations had a hotline in place at the time of the fraud, a
lack of reporting mechanism was the control deficiency least commonly cited by the CFEs who participated in our study.
Primary Internal Control Weakness Observed by CFEs
To further examine the unique challenges faced by small businesses, we compared internal control weaknesses at orga-
nizations with fewer than 100 employees to those at larger organizations. As shown in the chart at the top of page 46, the
small organizations had a noted deficiency in internal controls that allowed fraud to occur. In nearly half of the cases at small
companies, a lack of internal controls was cited as the factor that most contributed to the occurrence of the fraud. Control
overrides were markedly less common at small companies than at their larger counterparts, most likely because the lack of
controls in so many small organizations meant there was nothing to override.
We were also interested to see what factors led to the success of the largest frauds in our study — those causing losses of
more than $1 million. Clearly, one deficiency is much more common in the million-dollar frauds than in smaller frauds: a poor
tone at the top. This weakness was cited nearly three times as often in million-dollar cases as in cases with smaller losses.
Poor Tone at the Top
8.4%
Lack of Competent
Personnel in
Oversight Roles
6.9%
Lack of Independent
Checks/Audits
5.6%
Lack of Employee
Fraud Education
1.9%
Lack of Clear Lines
of Authority
1.8%
Lack of Reporting
Mechanism
0.6%
Lack of Internal
Controls
37.8% Override of Existing
Internal Controls
19.2%
Lack of
Management
Review
17.9%
46 | 2010 REPORT TO THE NATIONS ON OCCUPATIONAL FRAUD AND ABUSE
Victim Organizations
Primary Internal Control Weakness by Size of Victim Organization
Primary Internal Control Weakness in Largest Cases
0% 10% 20% 30% 40% 50%
100+ Employees
<100 Employees
Lack of Reporting Mechanism
Lack of Employee Fraud Education
Lack of Clear Lines of Authority
Lack of Competent Personnel
in Oversight Roles
Lack of Independent Checks/Audits
Poor Tone at the Top
Override of Existing Internal Controls
Lack of Management Review
Lack of Internal Controls
Percent of Cases
M
o
s
t

I
m
p
o
r
t
a
n
t

C
o
n
t
r
i
b
u
t
i
n
g

F
a
c
t
o
r
47.0%
33.7%
12.0%
22.3%
17.5%
17.8%
7.8%
8.5%
5.8%
7.8%
7.0%
5.2%
1.2%
1.6%
0.2%
2.0%
2.0%
0.9%
0% 10% 20% 30% 40% 50%
<$1 Million Cases
$1 Million+ Cases
Lack of Reporting Mechanism
Lack of Clear Lines of Authority
Lack of Employee Fraud Education
Lack of Independent Checks/Audits
Lack of Competent Personnel
in Oversight Roles
Poor Tone at the Top
Lack of Management Review
Override of Existing Internal Controls
Lack of Internal Controls
Percent of Cases
M
o
s
t

I
m
p
o
r
t
a
n
t

C
o
n
t
r
i
b
u
t
i
n
g

F
a
c
t
o
r
32.7%
39.7%
19.0%
19.1%
16.8%
18.2%
16.3%
5.8%
6.7%
7.0%
6.5%
5.3%
0.7%
0.7%
0.5%
2.3%
2.0%
0.7%
2010 REPORT TO THE NATIONS ON OCCUPATIONAL FRAUD AND ABUSE | 47
Modification of Controls
In response to the discovery of the fraud, more than 80% of
the victim organizations in our study implemented or modi-
fied internal controls. While this percentage is quite high, it
indicates that nearly one out of five victims retained the same
control system — or lack thereof — that was ineffective in
preventing the reported fraud schemes. Of those organiza-
tions that did implement or modify their internal controls in
response to the fraud, more than 60% increased segregation
of duties, more than half added formal review of internal con-
trols by management and 23% implemented surprise audits.
Victim Organizations That Modified
Controls After Discovery of Fraud
Internal Controls Modified or Implemented in Response to Fraud
19
19
The sum of percentages in this chart exceeds 100% because many victim organizations modified more than one anti-fraud control in response to the fraud.
20
KEY:
External Audit of F/S = Independent external audits of the organization’s financial statements t
Internal Audit / FE Department = Internal audit department or fraud examination department t
External Audit of ICOFR = Independent audits of the organization’s internal controls over financial reporting t
Management Certification of F/S = Management certification of the organization’s financial statements t
Did Modify Controls
80.6%
Did Not
Modify Controls
19.4%
0% 10% 20% 30% 40% 50% 60% 70% 80%
Employee Support Programs
Rewards for Whistleblowers
Management Certification of F/S
Indpendent Audit Committee
External Audit of ICOFR
Hotline
External Audit of F/S
Code of Conduct
Anti-Fraud Policy
Internal Audit/FE Department
Job Rotation/Mandatory Vacation
Fraud Training for Managers/Executives
Fraud Training for Employees
Surprise Audits
Management Review
Increased Segregation of Duties 61.2%
50.6%
22.5%
16.4%
14.8%
13.5%
12.3%
11.7%
8.7%
8.7%
7.9%
7.8%
6.0%
5.9%
4.0%
1.8%
Percent of Cases
C
o
n
t
r
o
l

I
m
p
l
e
m
e
n
t
e
d
/
M
o
d
i
f
i
e
d
2
0
48 | 2010 REPORT TO THE NATIONS ON OCCUPATIONAL FRAUD AND ABUSE
We asked respondents to provide information about the
fraud perpetrators in their cases so we could better un-
derstand how occupational fraud levels and losses are
related to demographic information such as age, job
type, gender, education and position of authority. In cas-
es where there were multiple offenders, the responses
relate to the principal perpetrator — the person identified
by the CFE as the primary culprit in the case. The follow-
ing is a summary of the data we received.
Perpetrator’s Position
We asked survey respondents whether the perpetrator
was an employee, a manager or an owner/executive. Be-
low we see that the distribution of cases based on the
perpetrator’s position was fairly similar to what we found
in our 2008 study, although the 2010 distribution was
slightly more skewed toward employees and managers.
Not surprisingly, there was a strong correlation between the
perpetrator’s position of authority and the losses caused by
fraud. The median loss in owner/executive frauds was more
than three times the loss caused by managers, and more
than nine times higher than losses in employee fraud cases.
Perpetrators
Position of Perpetrator — Frequency
We collected information about
the individuals responsible for
occupational fraud in order to
better understand the character-
istics of those who commit fraud.
More than 80% of the frauds in our study
were committed by individuals in six
departments: accounting, operations,
sales, executive/upper management,
customer service and purchasing.
0% 10% 20% 30% 40% 50%
2010
2008
Owner/Executive
Manager
Employee
42.1%
41.0%
39.7%
37.1%
16.9%
23.3%
Percent of Cases
P
o
s
i
t
i
o
n

o
f

P
e
r
p
e
t
r
a
t
o
r
2010 REPORT TO THE NATIONS ON OCCUPATIONAL FRAUD AND ABUSE | 49
Position of Perpetrator — Median Loss
As the following table illustrates, frauds committed by
higher-level perpetrators also took longer to detect. Cases
perpetrated by owners and executives typically lasted for
two years before they were detected — nearly twice as
long as employee frauds.
Months to Detection Based on Position
Position Median Months to Detect
Employee 13
Manager 18
Owner/Executive 24
Position of Perpetrators by Region
The charts on pages 50-52 present the distribution of perpetrators by level of authority for each region. In every region,
owners/executives accounted for between 12% and 18% of reported frauds, and the losses caused by owners/execu-
tives were significantly higher than those caused by managers or employees.
In the United States and Canada, employees were the largest block of fraud perpetrators (46% in each country). In Europe,
Asia and Central/South America, however, managers accounted for 50% or more of the reported occupational frauds. In
Africa and Oceania, the number of frauds committed by managers and employees were roughly equal.
$0 $200,000 $400,000 $600,000 $800,000 $1,000,000
2010
2008
Owner/Executive
Manager
Employee
$80,000
$70,000
$200,000
$150,000
$723,000
$834,000
Median Loss
P
o
s
i
t
i
o
n

o
f

P
e
r
p
e
t
r
a
t
o
r
50 | 2010 REPORT TO THE NATIONS ON OCCUPATIONAL FRAUD AND ABUSE
Perpetrators
Position of Perpetrator in the United States — 968 Cases
Position of Perpetrator in Asia — 259 Cases
Position of Perpetrator in Europe — 141 Cases
$0 $100,000 $200,000 $300,000 $400,000 $500,000
Owner/Executive (17.1%)
Manager (36.7%)
Employee (46.2%)
$150,000
$50,000
$485,000
Median Loss
P
o
s
i
t
i
o
n

o
f

P
e
r
p
e
t
r
a
t
o
r
(
p
e
r
c
e
n
t

o
f

c
a
s
e
s
)
$0 $200,000 $400,000 $600,000 $800,000 $1,000,000
Owner/Executive (16.6%)
Manager (50.6%)
Employee (32.8%)
$220,000
$143,000
$1,000,000
Median Loss
P
o
s
i
t
i
o
n

o
f

P
e
r
p
e
t
r
a
t
o
r
(
p
e
r
c
e
n
t

o
f

c
a
s
e
s
)
$0 $500,000 $1,000,000 $1,500,000 $2,000,000
Owner/Executive (17.7%)
Manager (50.4%)
Employee (31.9%)
$350,000
$340,000
$2,000,000
Median Loss
P
o
s
i
t
i
o
n

o
f

P
e
r
p
e
t
r
a
t
o
r
(
p
e
r
c
e
n
t

o
f

c
a
s
e
s
)
2010 REPORT TO THE NATIONS ON OCCUPATIONAL FRAUD AND ABUSE | 51
Position of Perpetrator in Africa — 108 Cases
Position of Perpetrator in Canada — 89 Cases
Position of Perpetrator in Central/South America and the Caribbean — 64 Cases
$0 $200,000 $400,000 $600,000 $800,000 $1,000,000
Owner/Executive (12.0%)
Manager (43.5%)
Employee (44.4%)
$270,000
$150,000
$1,000,000
Median Loss
P
o
s
i
t
i
o
n

o
f

P
e
r
p
e
t
r
a
t
o
r
(
p
e
r
c
e
n
t

o
f

c
a
s
e
s
)
$0 $100,000 $200,000 $300,000 $400,000
Owner/Executive (18.0%)
Manager (36.0%)
Employee (46.1%)
$250,000
$63,000
$325,000
Median Loss
P
o
s
i
t
i
o
n

o
f

P
e
r
p
e
t
r
a
t
o
r
(
p
e
r
c
e
n
t

o
f

c
a
s
e
s
)
$0 $500,000 $1,000,000 $1,500,000
Owner/Executive (17.2%)
Manager (50.0%)
Employee (32.8%)
$250,000
$31,000
$1,200,000
Median Loss
P
o
s
i
t
i
o
n

o
f

P
e
r
p
e
t
r
a
t
o
r
(
p
e
r
c
e
n
t

o
f

c
a
s
e
s
)
52 | 2010 REPORT TO THE NATIONS ON OCCUPATIONAL FRAUD AND ABUSE
Perpetrators
Position of Perpetrator in Oceania — 40 Cases
Perpetrator’s Gender
Two-thirds of the frauds in our study were committed by males, which is a higher percentage than we encountered in 2008,
but consistent with the overall trend noted in prior reports that most occupational frauds are committed by men.
Gender of Perpetrator — Frequency
$0 $200,000 $400,000 $600,000 $800,000
Owner/Executive (15.0%)
Manager (45.0%)
Employee (40.0%)
$300,000
$338,000
$750,000
Median Loss
P
o
s
i
t
i
o
n

o
f

P
e
r
p
e
t
r
a
t
o
r
(
p
e
r
c
e
n
t

o
f

c
a
s
e
s
)
0% 10% 20% 30% 40% 50% 60% 70% 80%
2010
2008
Female
Male
66.7%
59.1%
33.3%
40.9%
Percent of Cases
G
e
n
d
e
r

o
f

P
e
r
p
e
t
r
a
t
o
r
2010 REPORT TO THE NATIONS ON OCCUPATIONAL FRAUD AND ABUSE | 53
Gender of Perpetrator — Median Loss
The following chart shows the gender of perpetrators based on the region in which frauds occurred. Asia had the highest
ratio of male perpetrators (87%), while the United States had the lowest (57%).
Gender of Perpetrator Based on Region
Males accounted for significantly higher median fraud losses than females, which is also consistent with our previous studies.
The median loss caused by a male perpetrator was more than twice as high as the median loss caused by a female.
$0 $50,000 $100,000 $150,000 $200,000 $250,000
2010
2008
Female
Male
$232,000
$250,000
$100,000
$110,000
Median Loss
G
e
n
d
e
r

o
f

P
e
r
p
e
t
r
a
t
o
r
0% 20% 40% 60% 80% 100%
Female
Male
United States
Canada
Oceania
Africa
Central/South America
and the Caribbean
Europe
Asia
Percent of Cases
R
e
g
i
o
n
86.7%
13.3%
17.9%
19.1%
24.3%
32.5%
41.9%
42.8%
82.1%
80.9%
75.7%
67.5%
58.1%
57.2%
54 | 2010 REPORT TO THE NATIONS ON OCCUPATIONAL FRAUD AND ABUSE
Perpetrators
When broken down by region, we see that fraud losses caused by male perpetrators were higher than females in every
region. The gap was particularly large in Europe and Oceania.
21

Median Loss Based on Gender and Region of Perpetrator
To some extent, the higher losses caused by males are attributable to the fact that they tended to occupy higher posi-
tions of authority within the victim organizations. There were an equal number of male and female fraudsters at the
employee level, but the manager and owner/executive levels — which tend to cause higher losses — were dominated
by males. Seventy-four percent of all managers and 88% of all owners/executives in the study were male.
Surprisingly, though, even when we compared median losses within each position group, male fraud losses tended to be
higher. At the employee level, losses caused by males were 36% higher than those caused by females; at the manager
level, they were 67% higher, and at the owner/executive level, they were 325% higher.
22

21
There was a small sample of only 40 cases in Oceania, which may impact the reliability of the findings from that region.
22
There was a small sample of only 35 frauds committed by female owners and executives, which may impact the reliability of that data.
$0 $100,000 $200,000 $300,000 $400,000 $500,000 $600,000 $700,000 $800,000
Female
Male
United States
Canada
Oceania
Africa
Central/South America
and the Caribbean
Europe
Asia
Median Loss
R
e
g
i
o
n
$300,000
$680,000
$200,000
$160,000
$200,000
$124,000
$238,000
$182,000
$500,000
$230,000
$145,000
$125,000
$167,000
$82,000
2010 REPORT TO THE NATIONS ON OCCUPATIONAL FRAUD AND ABUSE | 55
It is unclear exactly why this trend appears in our data, but one possible explanation is that even within each position
group, there tend to be bands of authority — meaning some managers or executives have more authority than others. We
could be seeing the effect of higher male authority within each position.
Position of Perpetrator Based on Gender
Position of Perpetrator — Median Loss Based on Gender
0 100 200 300 400 500 600
Male
Female
Owner/Executive
Manager
Employee
356
514
356
184
247
35
Number of Cases
P
o
s
i
t
i
o
n

o
f

P
e
r
p
e
t
r
a
t
o
r
$0 $200,000 $400,000 $600,000 $800,000 $1,000,000
Male
Female
Owner/Executive
Manager
Employee
$95,000
$250,000
$850,000
$200,000
$150,000
$70,000
Median Loss
P
o
s
i
t
i
o
n

o
f

P
e
r
p
e
t
r
a
t
o
r
56 | 2010 REPORT TO THE NATIONS ON OCCUPATIONAL FRAUD AND ABUSE
Perpetrators
Perpetrator’s Age
The distribution of perpetrators based on their age was similar to our 2008 study, but the 2010 perpetrators tended to be
slightly younger. Our past reports have generally shown the highest levels of fraud to occur in the 36–50 age range, but this
year we found more than half of all cases were committed by individuals between the ages of 31 and 45. Generally speak-
ing, median losses tended to rise with the age of the perpetrator, which is consistent with our prior research. The most
notable difference between 2008 and 2010 is the losses caused by perpetrators older than 60. In each study, however,
we were dealing with fewer than 40 cases in that category. Given the small sample size, we believe this is more likely to
be an anomaly than an indication of any particular trend.
Age of Perpetrator — Frequency
0%
5%
10%
15%
20%
2010
2008
>60 56 – 60 51 – 55 46 – 50 41 – 45 36 – 40 31 – 35 26 – 30 <26
Age of Perpetrator
P
e
r
c
e
n
t

o
f

C
a
s
e
s
5.2%
9.6%
16.1%
19.3% 19.3%
13.7%
9.4%
5.2%
2.2%
4.6%
8.1%
12.8%
16.2%
18.1%
17.5%
12.0%
6.9%
3.9%
2010 REPORT TO THE NATIONS ON OCCUPATIONAL FRAUD AND ABUSE | 57
Perpetrator’s Tenure
Tenure may have an effect on occupational fraud rates and losses because individuals who work for an organization for
a longer period of time tend to engender more trust from their co-workers and superiors. They also may acquire higher
levels of authority, and they tend to develop a better understanding of the organization’s internal practices and proce-
dures, which can help them design frauds that will evade internal controls.
The distribution of fraudsters based on their tenure in this study was very similar to what we found in 2008. More than
40% of perpetrators had between one and five years of experience at the victim organization when they committed the
fraud, while a very small percentage had been with the victim organization for less than a year. About half of all fraudsters
had been with the victim for more than five years (see page 58).
As would be expected, losses tended to rise as the perpetrators’ tenure increased. Employees who had more than five
years of tenure with the victim organization caused median losses of more than $200,000. Those who had been with the
victim for five years or less caused much lower losses.
Age of Perpetrator — Median Loss
$0
$200,000
$400,000
$600,000
$800,000
$1,000,000
2010
2008
>60 56 – 60 51 – 55 46 – 50 41 – 45 36 – 40 31 – 35 26 – 30 <26
Age of Perpetrator
M
e
d
i
a
n

L
o
s
s
$
1
5
,
0
0
0
$
6
0
,
0
0
0
$
1
2
0
,
0
0
0
$
1
2
7
,
0
0
0
$
2
7
0
,
0
0
0
$
2
6
5
,
0
0
0
$
3
2
1
,
0
0
0
$
4
2
8
,
0
0
0
$
9
7
4
,
0
0
0
$
2
5
,
0
0
0
$
5
0
,
0
0
0
$
1
1
3
,
0
0
0
$
1
4
5
,
0
0
0
$
2
0
0
,
0
0
0
$
3
4
4
,
0
0
0
$
3
6
0
,
0
0
0
$
6
3
6
,
0
0
0
$
4
3
5
,
0
0
0
58 | 2010 REPORT TO THE NATIONS ON OCCUPATIONAL FRAUD AND ABUSE
Perpetrators
Tenure of Perpetrator — Frequency
Tenure of Perpetrator — Median Loss
0%
10%
20%
30%
40%
50%
2010
2008
More than 10 years 6 – 10 years 1 – 5 years Less than 1 year
Tenure of Perpetrator
P
e
r
c
e
n
t

o
f

C
a
s
e
s
5.7%
7.4%
45.7%
40.5%
23.2%
24.6%
25.4%
27.5%
$0
$50,000
$100,000
$150,000
$200,000
$250,000
$300,000
2010
2008
More than 10 years 6 – 10 years 1 – 5 years Less than 1 year
Tenure of Perpetrator
M
e
d
i
a
n

L
o
s
s
$47,000
$50,000
$114,000
$142,000
$231,000
$261,000
$289,000
$250,000
2010 REPORT TO THE NATIONS ON OCCUPATIONAL FRAUD AND ABUSE | 59
Perpetrator’s Education Level
Education level may also affect fraud rates and losses, because more highly educated individuals tend to have greater
levels of responsibility and perhaps greater technical ability to design sophisticated fraud schemes. The following chart
shows the distribution of perpetrators in this study based on their education level. Fifty-two percent of all perpetrators
had a college or postgraduate degree, which was up slightly from our 2008 findings. As would be expected, median
losses rose in correlation with increased education levels, but losses caused by individuals with a postgraduate degree
were much lower in 2010 than in our 2008 study.
Education of Perpetrator — Frequency
Education of Perpetrator — Median Loss
0% 5% 10% 15% 20% 25% 30% 35% 40%
2010
2008
High School Graduate
Some College
College Degree
Postgraduate Degree
14.0%
10.9%
34.4%
17.1%
20.8%
28.8%
33.9%
38.0%
Percent of Cases
E
d
u
c
a
t
i
o
n

L
e
v
e
l

o
f

P
e
r
p
e
t
r
a
t
o
r
$0 $100,000 $200,000 $300,000 $400,000 $500,000 $600,000
2010
2008
High School Graduate
Some College
College Degree
Postgraduate Degree
$300,000
$234,000
$210,000
$136,000
$196,000
$100,000
$100,000
$550,000
Median Loss
E
d
u
c
a
t
i
o
n

L
e
v
e
l

o
f

P
e
r
p
e
t
r
a
t
o
r
60 | 2010 REPORT TO THE NATIONS ON OCCUPATIONAL FRAUD AND ABUSE
Perpetrators
Number of Cases Based
on Perpetrator’s Department
Department
Number
of Cases
Percentage
Median
Loss
Accounting 367 22.0% $180,000
Operations 299 18.0% $105,000
Sales 225 13.5% $95,000
Executive/Upper
Management
224 13.5% $829,000
Customer Service 120 7.2% $46,000
Purchasing 103 6.2% $500,000
Warehousing/Inventory 78 4.7% $239,000
Finance 70 4.2% $450,000
Information Technology 47 2.8% $71,400
Marketing/Public
Relations
34 2.0% $248,000
Manufacturing and
Production
28 1.7% $150,000
Board of Directors 24 1.4% $800,000
Human Resources 22 1.3% $200,000
Research and
Development
13 0.8% $100,000
Legal 8 0.5% $566,000
Internal Audit 3 0.2% $13,000
Median Loss Based
on Perpetrator’s Department
Department
Number
of Cases
Percentage
Median
Loss
Executive/Upper
Management
224 13.5% $829,000
Board of Directors 24 1.4% $800,000
Legal 8 0.5% $566,000
Purchasing 103 6.2% $500,000
Finance 70 4.2% $450,000
Marketing/Public
Relations
34 2.0% $248,000
Warehousing/Inventory 78 4.7% $239,000
Human Resources 22 1.3% $200,000
Accounting 367 22.0% $180,000
Manufacturing and
Production
28 1.7% $150,000
Operations 299 18.0% $105,000
Research and
Development
13 0.8% $100,000
Sales 225 13.5% $95,000
Information Technology 47 2.8% $71,400
Customer Service 120 7.2% $46,000
Internal Audit 3 0.2% $13,000
Perpetrator’s Department
The table below left shows how frauds were distributed across various departments within the victim organizations. Inter-
estingly, 80% of all frauds in this study were committed by employees in six departments: accounting, operations, sales,
executive/upper management, customer service and purchasing. In our 2008 study, these six departments accounted for
83% of all cases. Additionally, the frauds in these six departments also accounted for 95% of all losses in our 2010 study,
and 99% in 2008.
The table below right presents the same data on frauds by department, but is sorted based on median losses. Among
the six highest-frequency departments we see that upper management ($829,000) and purchasing ($500,000) caused
the highest median losses. Frauds committed in the sales ($95,000) and customer service ($46,000) departments tended
to result in much lower losses.
2010 REPORT TO THE NATIONS ON OCCUPATIONAL FRAUD AND ABUSE | 61
Perpetrator’s Department Based on Region
The following tables show the distribution of perpetrators based on their department for each region. In every region but
Asia, accounting departments were associated with the greatest number of frauds. Overall, the distribution of cases was
very similar regardless of region. The six highest-frequency departments (accounting, operations, sales, executive/upper
management, customer service and purchasing) accounted for between 70% and 85% of the cases in every region.
United States — 913 Cases
Department
Number
of Cases
Percent
of Cases
Accounting 222 24.3%
Operations 189 20.7%
Executive/Upper Management 127 13.9%
Sales 120 13.1%
Customer Service 77 8.4%
Purchasing 39 4.3%
Warehousing/Inventory 36 3.9%
Finance 28 3.1%
Information Technology 26 2.8%
Manufacturing and Production 11 1.2%
Marketing/Public Relations 11 1.2%
Legal 7 0.8%
Board of Directors 6 0.7%
Human Resources 6 0.7%
Research and Development 6 0.7%
Internal Audit 2 0.2%
Europe — 146 Cases
Department
Number
of Cases
Percent
of Cases
Accounting 26 17.8%
Executive/Upper Management 23 15.8%
Operations 21 14.4%
Purchasing 13 8.9%
Sales 13 8.9%
Finance 11 7.5%
Customer Service 8 5.5%
Warehousing/Inventory 8 5.5%
Board of Directors 6 4.1%
Information Technology 6 4.1%
Marketing/Public Relations 5 3.4%
Research and Development 4 2.7%
Human Resources 1 0.7%
Manufacturing and Production 1 0.7%
Asia — 272 Cases
Department
Number
of Cases
Percent
of Cases
Sales 57 21.0%
Operations 42 15.4%
Accounting 41 15.1%
Executive/Upper Management 38 14.0%
Purchasing 29 10.7%
Finance 11 4.0%
Warehousing/Inventory 11 4.0%
Customer Service 9 3.3%
Board of Directors 8 2.9%
Marketing/Public Relations 8 2.9%
Human Resources 6 2.2%
Manufacturing and Production 6 2.2%
Information Technology 4 1.5%
Internal Audit 1 0.4%
Research and Development 1 0.4%
Africa — 105 Cases
Department
Number
of Cases
Percent
of Cases
Accounting 31 29.5%
Operations 13 12.4%
Finance 11 10.5%
Customer Service 9 8.6%
Executive/Upper Management 9 8.6%
Purchasing 7 6.7%
Warehousing/Inventory 6 5.7%
Human Resources 5 4.8%
Sales 5 4.8%
Information Technology 3 2.9%
Manufacturing and Production 3 2.9%
Board of Directors 1 1.0%
Legal 1 1.0%
Marketing/Public Relations 1 1.0%
62 | 2010 REPORT TO THE NATIONS ON OCCUPATIONAL FRAUD AND ABUSE
Perpetrators
Canada — 89 Cases
Department
Number
of Cases
Percent
of Cases
Accounting 22 24.7%
Operations 18 20.2%
Executive/Upper Management 12 13.5%
Customer Service 9 10.1%
Sales 9 10.1%
Warehousing/Inventory 7 7.9%
Information Technology 4 4.5%
Finance 2 2.2%
Human Resources 2 2.2%
Purchasing 2 2.2%
Board of Directors 1 1.1%
Marketing/Public Relations 1 1.1%
Oceania — 38 Cases
Department
Number
of Cases
Percent
of Cases
Accounting 12 31.6%
Operations 5 13.2%
Sales 5 13.2%
Warehousing/Inventory 4 10.5%
Executive/Upper Management 3 7.9%
Information Technology 2 5.3%
Purchasing 2 5.3%
Research and Development 2 5.3%
Customer Service 1 2.6%
Finance 1 2.6%
Marketing/Public Relations 1 2.6%
Central/South America and
the Caribbean — 66 Cases
Department
Number
of Cases
Percent
of Cases
Accounting 10 15.2%
Executive/Upper Management 9 13.6%
Sales 8 12.1%
Purchasing 7 10.6%
Customer Service 6 9.1%
Operations 6 9.1%
Finance 5 7.6%
Marketing/Public Relations 5 7.6%
Manufacturing and Production 4 6.1%
Warehousing/Inventory 3 4.5%
Board of Directors 1 1.5%
Human Resources 1 1.5%
Information Technology 1 1.5%
2010 REPORT TO THE NATIONS ON OCCUPATIONAL FRAUD AND ABUSE | 63
Schemes Committed by Perpetrators in the Accounting Department — 367 Cases
23
Schemes Based on Perpetrator’s Department
We broke down the distribution of fraud schemes based on the perpetrator’s department to see how methods of fraud
varied depending on where the perpetrator worked within an organization. We limited our inquiry to the six highest-
frequency departments: accounting, operations, sales, executive/upper management, customer service and purchasing.
As noted earlier, those six departments accounted for 80% of all cases.
Accounting Department
The most common schemes committed by fraudsters in the accounting department were check tampering and billing fraud,
each of which occurred in over 30% of cases. When compared to the overall distribution, we see that accounting personnel
are much more likely than other employees to commit check tampering and payroll fraud, but less likely to engage in corrup-
tion or steal non-cash assets. This distribution was similar to what we encountered in 2008.
23
The sum of percentages in this chart exceeds 100% because several cases involved schemes from more than one category.
0% 5% 10% 15% 20% 25% 30% 35%
All Cases
Accounting
Register Disbursements
Financial Statement Fraud
Non-Cash
Corruption
Expense Reimbursement
Cash on Hand
Payroll
Cash Larceny
Skimming
Billing
Check Tampering
Percent of Cases
S
c
h
e
m
e

T
y
p
e
33.2%
30.8%
26.0%
13.4%
18.3%
14.5%
16.3%
9.8%
8.5%
15.8%
13.1%
12.0%
11.4%
10.4%
17.5%
5.7%
4.1%
4.8%
2.2%
3.0%
15.1%
32.8%
64 | 2010 REPORT TO THE NATIONS ON OCCUPATIONAL FRAUD AND ABUSE
Perpetrators
Primary Operations
Fraudsters who worked in the primary operations of the victim organization most often engaged in corruption (31% of
cases) and billing fraud (22%). The distribution of frauds by operations staff was consistent with the overall distribution
of frauds.
Schemes Committed by Perpetrators in the Primary
Operations of the Victim Organization — 299 Cases
24
24
The sum of percentages in this chart exceeds 100% because several cases involved schemes from more than one category.
0% 5% 10% 15% 20% 25% 30% 35%
All Cases
Operations
Register Disbursements
Financial Statement Fraud
Cash Larceny
Payroll
Check Tampering
Cash on Hand
Skimming
Non-Cash
Expense Reimbursement
Billing
Corruption
Percent of Cases
S
c
h
e
m
e

T
y
p
e
30.8%
22.1%
26.0%
32.8%
15.4%
17.5%
15.7%
15.1%
14.5%
14.7%
13.0%
12.0%
11.0%
9.0%
8.5%
9.4%
2.7%
4.8%
2.0%
3.0%
13.4%
9.8%
2010 REPORT TO THE NATIONS ON OCCUPATIONAL FRAUD AND ABUSE | 65
Sales Department
The most common frauds in the sales department were corruption (34% of cases) and theft of non-cash assets (24%).
Fraudsters in the sales department were somewhat more likely than others to steal non-cash assets. Conversely, they
were much less likely to engage in billing schemes, check tampering or payroll fraud.
Schemes Committed by Perpetrators in the Sales Department — 225 Cases
25
25
The sum of percentages in this chart exceeds 100% because several cases involved schemes from more than one category.
0% 5% 10% 15% 20% 25% 30% 35%
All Cases
Sales
Payroll
Financial Statement Fraud
Check Tampering
Register Disbursements
Cash Larceny
Cash on Hand
Billing
Expense Reimbursement
Skimming
Non-Cash
Corruption
Percent of Cases
S
c
h
e
m
e

T
y
p
e
33.8%
23.6%
17.5%
32.8%
16.4%
14.5%
15.6%
15.1%
26.0%
13.8%
12.0%
12.0%
9.3%
8.0%
13.4%
4.0%
3.6%
4.8%
1.8%
8.5%
9.8%
3.0%
66 | 2010 REPORT TO THE NATIONS ON OCCUPATIONAL FRAUD AND ABUSE
Perpetrators
Executive or Upper Management
When fraud occurred in the executive suite, nearly half of the cases involved corruption. Billing fraud (41%) and expense
reimbursement schemes (30%) were also very common. All three of these schemes occurred with much more frequen-
cy among executives than other employees. Financial statement fraud schemes were also much more common among
executives and upper management.
Schemes Committed by Perpetrators in Executive/
Upper Management Positions — 224 Cases
26
26
The sum of percentages in this chart exceeds 100% because several cases involved schemes from more than one category.
0% 10% 20% 30% 40% 50%
All Cases
Executive/
Upper Management
Register Disbursements
Cash Larceny
Cash on Hand
Financial Statement Fraud
Skimming
Check Tampering
Payroll
Non-Cash
Expense Reimbursement
Billing
Corruption
Percent of Cases
S
c
h
e
m
e

T
y
p
e
48.7%
40.6%
26.0%
32.8%
29.9%
15.1%
18.3%
17.5%
8.5%
16.1%
14.3%
12.0%
13.8%
13.8%
13.4%
12.5%
11.6%
9.8%
1.3%
3.0%
12.0%
4.8%
2010 REPORT TO THE NATIONS ON OCCUPATIONAL FRAUD AND ABUSE | 67
Customer Service Department
Corruption was the most common form of fraud among customer service employees (22% of cases), but compared
to the distribution for all cases, we see that corruption was actually much less likely to occur in customer service than
elsewhere. Conversely, skimming, theft of cash on hand and fraudulent register disbursements were more likely to occur
in customer service than in other areas of the organization.
Schemes Committed by Perpetrators in the Customer Service Department — 120 Cases
27
27
The sum of percentages in this chart exceeds 100% because several cases involved schemes from more than one category.
0% 5% 10% 15% 20% 25% 30% 35%
All Cases
Customer Service
Payroll
Financial Statement Fraud
Expense Reimbursement
Register Disbursements
Check Tampering
Billing
Cash Larceny
Non-Cash
Cash on Hand
Skimming
Corruption
Percent of Cases
S
c
h
e
m
e

T
y
p
e
21.7%
19.2%
14.5%
32.8%
18.3%
12.0%
17.5%
17.5%
9.8%
9.2%
8.3%
26.0%
8.3%
8.3%
15.1%
3.3%
1.7%
4.8%
0.8%
8.5%
13.4%
3.0%
68 | 2010 REPORT TO THE NATIONS ON OCCUPATIONAL FRAUD AND ABUSE
Perpetrators
Purchasing Department
The vast majority of frauds in the purchasing department involved corruption (72% of cases), and billing schemes also
occurred at a very high rate (43%). Both of these schemes were more likely to occur in the purchasing department than
in any other area of the organization, which is not surprising because the purchasing function often lends itself to bribery,
overbilling and bid rigging schemes, which are among the most costly forms of occupational fraud.
Schemes Committed by Perpetrators in the Purchasing Department — 103 Cases
28
28
The sum of percentages in this chart exceeds 100% because several cases involved schemes from more than one category.
0% 10% 20% 30% 40% 50% 60% 70% 80%
All Cases
Purchasing
Register Disbursements
Financial Statement Fraud
Payroll
Cash Larceny
Check Tampering
Cash on Hand
Skimming
Expense Reimbursement
Non-Cash
Billing
Corruption
Percent of Cases
S
c
h
e
m
e

T
y
p
e
71.8%
42.7%
26.0%
32.8%
13.6%
17.5%
9.7%
15.1%
14.5%
5.8%
4.9%
4.9%
12.0%
2.9%
8.5%
1.9%
0.0%
0.0%
4.8%
3.0%
13.4%
9.8%
2010 REPORT TO THE NATIONS ON OCCUPATIONAL FRAUD AND ABUSE | 69
Perpetrator’s Criminal and Employment
History
Perpetrator’s Criminal Background
Only 7% of the fraud perpetrators in our study had been
previously convicted of a fraud-related offense, which
was virtually identical to our finding in 2008. Eighty-six
percent had never been charged with or convicted of a
prior offense. The low rate of prior convictions suggests
that criminal background checks may have some effect in
preventing fraud, but the effect is probably limited.
Perpetrator’s Employment Background
In addition to criminal history, past employment issues
may indicate that an employee is more likely to engage
in fraudulent conduct in the future. Of the respondents in
our survey, 791 were able to provide information about
the perpetrator’s prior employment history. Among those
cases, about 8% of perpetrators had been previously
punished and 10% had been previously terminated for
fraud-related conduct.
Behavioral Red Flags Displayed by
Perpetrators
While a fraud is ongoing, the perpetrator often displays
certain behaviors or characteristics that might indicate he
or she has a heightened risk of committing fraud. On their
own, these behavioral red flags do not prove an individual
is engaged in a fraud, but they should raise warning sig-
nals to the individual’s co-workers and managers, as well
as the organization’s anti-fraud staff. When these red flags
exist alongside other indicators of misconduct, this can be
a strong clue that something is wrong. As discussed earlier
in this report, occupational frauds often last for months or
years before they are caught, so the ability to detect frauds
as early as possible can have a big effect in limiting losses.
0%
20%
40%
60%
80%
100%
2010
2008
Charged But
Not Convicted
Prior
Convictions
Never Charged
or Convicted
85.7%
87.4%
6.7%6.8%
7.7%
5.7%
Criminal Background
P
e
r
c
e
n
t

o
f

C
a
s
e
s
0%
20%
40%
60%
80%
100%
2010
2008
Previously
Punished
Previously
Terminated
Never Punished
or Terminated
82.4% 82.6%
9.5%
12.3%
8.1%
5.1%
Employment Background
P
e
r
c
e
n
t

o
f

C
a
s
e
s
Perpetrator’s Criminal Background
Perpetrator’s Employment Background
70 | 2010 REPORT TO THE NATIONS ON OCCUPATIONAL FRAUD AND ABUSE
Perpetrators
We presented survey respondents with a list of common behavioral red flags and asked them to identify which of these
warning signs had been displayed by the perpetrator prior to detection of the fraud. As shown in the chart below, the most
common red flags displayed by perpetrators were living beyond financial means (43% of cases), experiencing financial
difficulties (36%), excessive control issues with regard to their jobs (23%) and an unusually close association with vendors
or customers (22%). This distribution is very similar to what we found in our 2008 study. As we continue to track this
data in future studies, we hope to be able to identify consistent relationships between behavioral warning signs and
the occurrence of occupational fraud. Ideally, this data will help organizations build better fraud-detection programs that
incorporate behavioral data in addition to more standard anti-fraud controls.
Behavioral Red Flags of Perpetrators
29
29
The sum of percentages in this chart exceeds 100% because in many cases perpetrators displayed more than one behavioral red flag.
0% 10% 20% 30% 40% 50%
2010
2008
Complained about lack of authority
Excessive family/peer pressure for success
Instability in life circumstances
Past legal problems
Excessive pressure from within organization
Complained about inadequate pay
Past employment-related problems
Refusal to take vacations
Addiction problems
Irritability, suspiciousness or defensiveness
Divorce/family problems
Wheeler-dealer attitude
Unusually close association with vendor/customer
Control issues, unwillingness to share duties
Financial difficulties
Living beyond means
43.0%
38.6%
36.4%
34.1%
22.6%
18.7%
22.1%
15.2%
19.2%
20.3%
17.6%
17.1%
14.1%
13.6%
11.9%
13.3%
10.2%
6.8%
9.3%
7.9%
7.9%
7.3%
7.5%
6.5%
6.3%
8.7%
5.6%
4.9%
5.1%
4.2%
4.6%
3.6%
Percent of Cases
B
e
h
a
v
i
o
r
a
l

R
e
d

F
l
a
g
2010 REPORT TO THE NATIONS ON OCCUPATIONAL FRAUD AND ABUSE | 71
Red Flags Based on Perpetrator’s Position
The behavioral indicators that a fraud perpetrator displays can vary depending on a number of factors. The following
chart shows the distribution of red flags based on the perpetrator’s level of authority. Among employee-level fraudsters,
the most common behavioral red flag was financial difficulties, which was present in nearly half of all employee fraud
cases. Because employee-level fraudsters generally have lower incomes than managers or owners/executives, we would
expect their motivation for committing fraud to more often be based on an immediate, pressing financial need, which
explains why this red flag shows up so often. While financial difficulty was still frequently cited in cases involving manag-
ers and owners/executives, it occurred much less often. Conversely, owners/executives and managers were much more
likely than employees to display control issues, to have unusually close associations with vendors or customers or to
exhibit a “wheeler-dealer” attitude. Each of these red flags tends to reflect the authority level of owners/executives and
managers, who are in a better position than employees to influence organizational decision-making, arrange deals with
outside parties and exert their control over the direction or tone of the organization.
Behavioral Red Flags of Perpetrators Based on Position
30
30
The sum of percentages in this chart exceeds 100% because in many cases perpetrators displayed more than one behavioral red flag.
0% 10% 20% 30% 40% 50%
Owner/Executive
Manager
Employee
Complained about lack of authority
Excessive family/peer pressure for success
Instability in life circumstances
Past legal problems
Excessive pressure from within organization
Complained about inadequate pay
Past employment-related problems
Refusal to take vacations
Addiction problems
Irritability, suspiciousness or defensiveness
Divorce/family problems
Wheeler-dealer attitude
Unusually close association with vendor/customer
Control issues, unwillingness to share duties
Financial difficulties
Living beyond means
40.7%
43.8%
30.7%
26.1%
25.8%
33.0%
29.8%
35.2%
24.9%
21.0%
19.3%
16.4%
16.5%
9.8%
16.9%
16.5%
12.1%
12.7%
11.6%
10.0%
7.7%
11.1%
7.6%
8.4%
9.8%
6.8%
7.3%
4.8%
9.9%
8.4%
6.3%
5.9%
7.7%
6.6%
4.3%
5.7%
5.8%
4.3%
5.7%
6.7%
2.7%
2.6%
10.7%
15.2%
12.1%
10.7%
48.3%
47.6%
Percent of Cases
B
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a
l

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d

F
l
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g
72 | 2010 REPORT TO THE NATIONS ON OCCUPATIONAL FRAUD AND ABUSE
Perpetrators
Red Flags Based on Scheme Type
We also broke down the distribution of red flags based on the type of fraud. Different forms of occupational fraud result
from different factors and circumstances, which we would expect to show up in the fraudsters’ behavior. As the chart
below illustrates, individuals who engaged in financial statement frauds were much more likely than other perpetrators
to exhibit control issues or to be under excessive pressure to perform within their organization. Meanwhile, living beyond
one’s means and experiencing financial difficulties were not as common among financial statement fraudsters as oth-
ers. This makes sense, because while asset misappropriations and corruption schemes are almost always committed to
enrich the fraudster, in many financial statement schemes, other factors — such as meeting earnings forecasts or hitting
budget targets — may be as much of a motivator as personal financial gain. An unusually close association with a vendor
or customer was noted as a red flag in 45% of corruption cases, which is not surprising given that most corruption frauds
involve bribery or some kind of illicit benefit. A “wheeler-dealer” attitude was also more common in corruption cases than
in other forms of fraud, and 42% of all corruption perpetrators were identified as living beyond their means. Among those
who misappropriated assets, living beyond one’s means and financial difficulties were the two most common red flags.
Behavioral Red Flags of Perpetrators Based on Scheme Type
31
31
The sum of percentages in this chart exceeds 100% because in many cases perpetrators displayed more than one behavioral red flag.
0% 10% 20% 30% 40% 50%
Asset Misappropriation
Corruption
Financial Statement Fraud
Complained about lack of authority
Excessive family/peer pressure for success
Instability in life circumstances
Past legal problems
Excessive pressure from within organization
Complained about inadequate pay
Past employment-related problems
Refusal to take vacations
Addiction problems
Irritability, suspiciousness or defensiveness
Divorce/family problems
Wheeler-dealer attitude
Unusually close association with vendor/customer
Control issues, unwillingness to share duties
Financial difficulties
Living beyond means
22.7%
42.0%
25.2%
39.3%
23.7%
22.2%
45.6%
18.5%
19.3%
28.0%
8.0%
11.3%
19.0%
18.7%
13.9%
14.3%
9.3%
7.4%
14.7%
8.0%
10.7%
10.7%
10.0%
9.1%
6.7%
8.3%
8.6%
21.3%
11.1%
6.4%
8.0%
5.9%
6.4%
2.7%
5.0%
5.9%
9.3%
6.5%
5.4%
5.6%
4.7%
4.0%
12.9%
33.3%
20.0%
26.7%
44.8%
24.0%
Percent of Cases
B
e
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a
v
i
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a
l

R
e
d

F
l
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g
2010 REPORT TO THE NATIONS ON OCCUPATIONAL FRAUD AND ABUSE | 73
The following tables present the distribution of behav-
ioral red flags based on the region in which the fraud
occurred.
32
In every region, financial difficulties or living
beyond one’s means was cited as the most common red
flag. We also noted that unusually close associations with
vendors or customers was among the three most com-
mon red flags in every region except the United States
and Canada, where it ranked 6th and 9th, respectively.
United States — 876 Cases
Behavioral Red Flag
Number
of Cases
Percent
of Cases
Financial difficulties 392 44.7%
Living beyond means 391 44.6%
Control issues, unwillingness to share duties 205 23.4%
Divorce/family problems 201 22.9%
Wheeler-dealer attitude 173 19.7%
Unusually close association with vendor 141 16.1%
Irritability, suspiciousness or defensiveness 127 14.5%
Addiction problems 124 14.2%
Past employment-related problems 85 9.7%
Past legal problems 75 8.6%
Refusal to take vacations 74 8.4%
Complaining about inadequate pay 64 7.3%
Instability in life circumstances 54 6.2%
Excessive pressure from within organization 51 5.8%
Excessive family/peer pressure 39 4.5%
Complaining about lack of authority 37 4.2%
Asia — 271 Cases
Behavioral Red Flag
Number
of Cases
Percent
of Cases
Living beyond means 96 35.4%
Unusually close association with vendor 94 34.7%
Financial difficulties 62 22.9%
Control issues, unwillingness to share duties 46 17.0%
Excessive pressure from within organization 41 15.1%
Wheeler-dealer attitude 39 14.4%
Refusal to take vacations 31 11.4%
Irritability, suspiciousness or defensiveness 27 10.0%
Complaining about inadequate pay 25 9.2%
Complaining about lack of authority 19 7.0%
Addiction problems 18 6.6%
Past employment-related problems 15 5.5%
Divorce/family problems 14 5.2%
Excessive family/peer pressure 13 4.8%
Instability in life circumstances 8 3.0%
Past legal problems 6 2.2%
Europe — 129 Cases
Behavioral Red Flag
Number
of Cases
Percent
of Cases
Living beyond means 54 41.9%
Unusually close association with vendor 36 27.9%
Control issues, unwillingness to share duties 33 25.6%
Financial difficulties 32 24.8%
Wheeler-dealer attitude 29 22.5%
Irritability, suspiciousness or defensiveness 22 17.1%
Divorce/family problems 21 16.3%
Past employment-related problems 17 13.2%
Refusal to take vacations 16 12.4%
Addiction problems 10 7.8%
Past legal problems 10 7.8%
Excessive pressure from within organization 10 7.8%
Instability in life circumstances 9 7.0%
Complaining about inadequate pay 8 6.2%
Complaining about lack of authority 7 5.4%
Excessive family/peer pressure 6 4.7%
32
The sum of percentages in these tables exceeds 100% because in many cases
perpetrators displayed more than one behavioral red flag.
Red Flags Based on Region
74 | 2010 REPORT TO THE NATIONS ON OCCUPATIONAL FRAUD AND ABUSE
Perpetrators
Africa — 102 Cases
Behavioral Red Flag
Number
of Cases
Percent
of Cases
Living beyond means 62 60.8%
Unusually close association with vendor 33 32.4%
Financial difficulties 26 25.5%
Control issues, unwillingness to share duties 25 24.5%
Wheeler-dealer attitude 20 19.6%
Refusal to take vacations 17 16.7%
Irritability, suspiciousness or defensiveness 15 14.7%
Complaining about inadequate pay 12 11.8%
Divorce/family problems 11 10.8%
Excessive pressure from within organization 11 10.8%
Excessive family/peer pressure 10 9.8%
Addiction problems 7 6.9%
Past employment-related problems 5 4.9%
Complaining about lack of authority 4 3.9%
Instability in life circumstances 4 3.9%
Past legal problems 2 2.0%
Central/South America and
the Caribbean — 60 Cases
Behavioral Red Flag
Number
of Cases
Percent
of Cases
Financial difficulties 24 40.0%
Living beyond means 19 31.7%
Unusually close association with vendor 16 26.7%
Divorce/family problems 10 16.7%
Irritability, suspiciousness or defensiveness 10 16.7%
Control issues, unwillingness to share duties 10 16.7%
Wheeler-dealer attitude 9 15.0%
Past employment-related problems 6 10.0%
Excessive family/peer pressure 5 8.3%
Refusal to take vacations 5 8.3%
Addiction problems 4 6.7%
Complaining about inadequate pay 3 5.0%
Complaining about lack of authority 3 5.0%
Instability in life circumstances 3 5.0%
Past legal problems 2 3.3%
Excessive pressure from within organization 1 1.7%
Canada — 84 Cases
Behavioral Red Flag
Number
of Cases
Percent
of Cases
Financial difficulties 29 34.5%
Control issues, unwillingness to share duties 29 34.5%
Living beyond means 28 33.3%
Wheeler-dealer attitude 22 26.2%
Irritability, suspiciousness or defensiveness 18 21.4%
Addiction problems 17 20.2%
Divorce/family problems 14 16.7%
Refusal to take vacations 12 14.3%
Unusually close association with vendor 11 13.1%
Complaining about inadequate pay 10 11.9%
Past employment-related problems 10 11.9%
Instability in life circumstances 7 8.3%
Complaining about lack of authority 3 3.6%
Excessive family/peer pressure 3 3.6%
Past legal problems 1 1.2%
Excessive pressure from within organization 1 1.2%
Oceania — 37 Cases
Behavioral Red Flag
Number
of Cases
Percent
of Cases
Living beyond means 20 54.1%
Wheeler-dealer attitude 13 35.1%
Unusually close association with vendor 11 29.7%
Addiction problems 9 24.3%
Divorce/family problems 9 24.3%
Financial difficulties 8 21.6%
Control issues, unwillingness to share duties 8 21.6%
Past employment-related problems 6 16.2%
Refusal to take vacations 5 13.5%
Irritability, suspiciousness or defensiveness 4 10.8%
Excessive family/peer pressure 4 10.8%
Past legal problems 2 5.4%
Excessive pressure from within organization 2 5.4%
Instability in life circumstances 1 2.7%
2010 REPORT TO THE NATIONS ON OCCUPATIONAL FRAUD AND ABUSE | 75
Methodology
The 2010 Report to the Nations on Occupational Fraud and
Abuse is based on the results of an online survey distrib-
uted to 22,927 Certified Fraud Examiners (CFEs) in Octo-
ber 2009. As part of the survey, respondents were asked
to provide a detailed narrative of the single largest fraud
case they had investigated that met four explicit criteria:
The case must have involved occupational fraud 1.
(defined as internal fraud, or fraud committed by
a person against the organization for which he or
she works).
The investigation must have occurred between 2.
January 2008 and the time of survey participation.
The investigation must have been completed. 3.
The CFE must have been reasonably sure the 4.
perpetrator(s) was/were identified.
Respondents were also presented with 87 questions to
answer. These questions covered particular details of the
scheme, including information about the perpetrator, the
victim organization and the methods of fraud employed, as
well as fraud trends in general. Overall, we received 1,939
responses to the survey, 1,843 of which were usable for
purposes of this Report. The data contained herein is based
solely on the information provided in these 1,843 cases.
Who Provided the Data?
We sent the survey to all CFEs in good standing at the
time of the survey launch. We asked respondents to pro-
vide certain information about their professional experi-
ence and qualifications so that we could gather a fuller
understanding of who was involved in investigating the
frauds reported to us as part of our research.
Primary Occupation
More than half of the CFEs who participated in our study
identified themselves as either fraud examiners or internal
auditors. Another 12% stated that they are accountants,
and just over 7% indicated they work as law enforcement
officers.
The 2010 Report to the Nations
on Occupational Fraud and
Abuse is based on the results of
an online survey distributed
Lo zz,¤z; CerLIhed ¡ruud
ExumIners (C¡Es) In IuLe zoo¤.
The data in this study is based on 1,843
cases of occupational fraud that were
reported by CFEs.
76 | 2010 REPORT TO THE NATIONS ON OCCUPATIONAL FRAUD AND ABUSE
Methodology
Experience
The professionals who took part in our study had a median of 12 years of experience in the fraud examination field. Over
80 percent of respondents had more than five years of anti-fraud experience, and nearly one-quarter of the participants
have worked in fraud examination for more than 20 years.
Nature of Fraud Examinations
Fifty-four percent of the respondents to our survey stated that they work in-house at an organization for which they
conduct internal fraud examinations. This category typically includes professionals such as internal auditors and fraud
examiners. Thirty-four percent of the survey participants identified themselves as working for a professional services firm
that conducts fraud examinations on behalf of other companies or agencies, and 12% of respondents work for a law
enforcement agency.
Primary Occupations of Survey Participants
0% 5% 10% 15% 20% 25% 30%
Educator
Forensic Accountant
Attorney
Bank Examiner
IT/Computer Forensic Specialist
Governance, Risk and Compliance
External Auditor
Private Investigator
Corporate Security
Consultant
Law Enforcement
Accountant
Internal Auditor
Fraud Examiner
61.2%
28.0%
26.8%
11.6%
7.2%
7.1%
6.0%
3.6%
2.5%
2.4%
1.3%
1.1%
1.0%
1.0%
0.5%
Percent of Respondents
R
e
s
p
o
n
d
e
n
t

s

O
c
c
u
p
a
t
i
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n
2010 REPORT TO THE NATIONS ON OCCUPATIONAL FRAUD AND ABUSE | 77
Nature of Survey Participants’ Fraud Examination Work
Experience of Survey Participants
Professional
Services Firm
34.4%
Law Enforcement
11.9%
In-house Examiner
53.8%
0%
5%
10%
15%
20%
25%
30%
More than 20 years 15 to 20 years 11 to 15 years 6 to 10 years 5 years or less
Experience
P
e
r
c
e
n
t

o
f

P
a
r
t
i
c
i
p
a
n
t
s
17.8%
7.2%
26.5%
17.9%
13.4%
24.4%
78 | 2010 REPORT TO THE NATIONS ON OCCUPATIONAL FRAUD AND ABUSE
Appendix
Breakdown of Geographic Regions by Country
Africa — 112 Cases
Country
Number
of Cases
Cameroon 1
Democratic Republic of the Congo 1
Egypt 5
Ethiopia 1
Ghana 4
Guinea 1
Kenya 7
Liberia 1
Malawi 1
Mauritius 2
Mozambique 2
Nigeria 21
Republic of the Congo 1
Senegal 1
South Africa 47
Sudan 1
Tanzania 4
Tunisia 1
Uganda 5
Zambia 2
Zimbabwe 3
Asia — 298 Cases
Country
Number
of Cases
Afghanistan 1
Bahrain 1
Cambodia 2
China 62
Cyprus 3
India 37
Indonesia 27
Iran 1
Iraq 1
Japan 16
Jordan 4
Kuwait 3
Kyrgyzstan 1
Lebanon 4
Malaysia 22
Oman 4
Pakistan 8
Philippines 16
Qatar 5
Saudi Arabia 9
Singapore 7
South Korea 5
Sri Lanka 2
Taiwan 4
Tajikistan 1
Thailand 2
Turkey 20
Turkmenistan 2
United Arab Emirates 27
Vietnam 1
2010 REPORT TO THE NATIONS ON OCCUPATIONAL FRAUD AND ABUSE | 79
Central/South America and
the Caribbean — 70 Cases
Country
Number
of Cases
Argentina 7
Bahamas 1
Barbados 1
Belize 1
Bolivia 1
Brazil 12
Chile 1
Colombia 3
Costa Rica 1
Dominican Republic 2
Grenada 1
Honduras 1
Jamaica 4
Mexico 20
Nicaragua 2
Panama 1
Peru 3
Saint Lucia 1
Saint Vincent and the Grenadines 2
Trinidad and Tobago 4
Venezuela 1
Oceania — 40 Cases
Country
Number
of Cases
Australia 29
Fiji 2
Micronesia 1
New Zealand 8
Europe — 157 Cases
Country
Number
of Cases
Austria 3
Belgium 9
Bulgaria 3
Czech Republic 5
Estonia 1
Finland 3
France 1
Germany 19
Greece 6
Hungary 3
Ireland 1
Italy 7
Kosovo 1
Liechtenstein 1
Luxembourg 1
Montenegro 1
Netherlands 14
Poland 9
Portugal 2
Romania 5
Russia 18
Serbia 1
Slovakia 1
Slovenia 1
Spain 8
Switzerland 4
Ukraine 1
United Kingdom 28
80 | 2010 REPORT TO THE NATIONS ON OCCUPATIONAL FRAUD AND ABUSE
Fraud Prevention Checklist
The most cost-effective way to limit fraud losses is to prevent fraud from occurring. This checklist is designed to
help organizations test the effectiveness of their fraud prevention measures.
Is ongoing anti-fraud training provided to all employees of the organization? 1.
Do employees understand what constitutes fraud? q
Have the costs of fraud to the company and everyone in it — including lost profits, adverse publicity, job loss q
and decreased morale and productivity — been made clear to employees?
Do employees know where to seek advice when faced with uncertain ethical decisions, and do they believe that q
they can speak freely?
Has a policy of zero-tolerance for fraud been communicated to employees through words and actions? q
Is an effective fraud reporting mechanism in place? 2.
Have employees been taught how to communicate concerns about known or potential wrongdoing? q
Is there an anonymous reporting channel available to employees, such as a third-party hotline? q
Do employees trust that they can report suspicious activity anonymously and/or confidentially and without fear q
of reprisal?
Has it been made clear to employees that reports of suspicious activity will be promptly and thoroughly evaluated? q
To increase employees’ perception of detection, are the following proactive measures taken and publicized to 3.
employees?
Is possible fraudulent conduct aggressively sought out, rather than dealt with passively? q
Does the organization send the message that it actively seeks out fraudulent conduct through fraud assessment q
questioning by auditors?
Are surprise fraud audits performed in addition to regularly scheduled fraud audits? q
Is continuous auditing software used to detect fraud and, if so, has the use of such software been made known q
throughout the organization?
Is the management climate/tone at the top one of honesty and integrity? 4.
Are employees surveyed to determine the extent to which they believe management acts with honesty and integrity? q
Are performance goals realistic? q
Have fraud prevention goals been incorporated into the performance measures against which managers are q
evaluated and which are used to determine performance-related compensation?
Has the organization established, implemented and tested a process for oversight of fraud risks by the board of q
directors or others charged with governance (e.g., the audit committee)?
2010 REPORT TO THE NATIONS ON OCCUPATIONAL FRAUD AND ABUSE | 81
5. Are fraud risk assessments performed to proactively identify and mitigate the company’s vulnerabilities to
internal and external fraud?
6. Are strong anti-fraud controls in place and operating effectively, including the following?
! Proper separation of duties
! Use of authorizations
! Physical safeguards
! Job rotations
! Mandatory vacations
7. Does the internal audit department, if one exists, have adequate resources and authority to operate
effectively and without undue influence from senior management?
8. Does the hiring policy include the following (where permitted by law)?
! Past employment verification
! Criminal and civil background checks
! Credit checks
! Drug screening
! Education verification
! References check
9. Are employee support programs in place to assist employees struggling with addictions, mental/emotional
health, family or financial problems?
10. Is an open-door policy in place that allows employees to speak freely about pressures, providing
management the opportunity to alleviate such pressures before they become acute?
11. Are anonymous surveys conducted to assess employee morale?
82 | 2010 REPORT TO THE NATIONS ON OCCUPATIONAL FRAUD AND ABUSE
About the ACFE
The ACFE is the world’s largest anti-fraud organization
and premier provider of anti-fraud training and education.
Together with more than 50,000 members in more than
140 countries, the ACFE is reducing business fraud world-
wide and providing the training and resources needed to
fight fraud more effectively.
Founded in 1988 by Dr. Joseph T. Wells, CFE, CPA, the
ACFE provides educational tools and practical solutions
for anti-fraud professionals through initiatives including:
Global conferences and seminars led by anti-fraud t
experts
Instructor-led, interactive professional training t
Comprehensive resources for fighting fraud, t
including books, self-study courses and articles
Leading anti-fraud periodicals including t Fraud
Magazine
®
, The Fraud Examiner and FraudInfo
Local networking and support through ACFE t
chapters worldwide
Anti-fraud curriculum and educational tools for t
colleges and universities
The positive effects of anti-fraud training are far-reaching.
Clearly, the only way to combat fraud is to educate any-
one engaged in fighting fraud on how to effectively pre-
vent, detect and investigate it. By educating, uniting and
supporting the global anti-fraud community with the tools
to fight fraud more effectively, the ACFE is reducing busi-
ness fraud worldwide and inspiring public confidence in
the integrity and objectivity within the profession.
The ACFE offers its members the opportunity for profes-
sional certification. The CFE credential is preferred by
businesses and government entities around the world and
indicates expertise in fraud prevention and detection.
TIe AssocIuLIon oI CerLIhed
¡ruud ExumIners serves more
than 50,000 members in 140
countries worldwide.
For more information about the ACFE,
visit ACFE.com.
2010 REPORT TO THE NATIONS ON OCCUPATIONAL FRAUD AND ABUSE | 83
Certified Fraud Examiners
CFEs are anti-fraud experts who have demonstrated knowledge in four critical areas: Fraudulent Financial Transactions,
Fraud Investigation, Legal Elements of Fraud, and Fraud Prevention and Deterrence. In support of CFEs and the CFE
credential, the ACFE:
Provides bona fide qualifications for CFEs through administration of the Uniform CFE Examination t
Requires CFEs to adhere to a strict code of professional conduct and ethics t
Serves as the global representative for CFEs to business, government and academic institutions t
Provides leadership to inspire public confidence in the integrity, objectivity, and professionalism of CFEs t
Membership
Immediate access to world-class anti-fraud knowledge and tools is a necessity in the fight against fraud. Members of
the ACFE include accountants, internal auditors, fraud investigators, law enforcement personnel, lawyers, business
leaders, risk/compliance professionals and educators, all of whom have access to expert training, educational tools and
resources.
Members all over the world have come to depend on the ACFE for solutions to the challenges they face in their
professions. Whether their career is focused exclusively on preventing and detecting fraudulent activities or they
just want to learn more about fraud, the ACFE provides the essential tools and resources necessary for anti-fraud
professionals to accomplish their objectives.
To learn more, visit ACFE.com or call (800) 245-3321 / +1 (512) 478-9000.
WOFLD HEADOUAFTEFS º THE GFEGOF BUlLDlNG
716 West Ave º Austih, TX 78701-2727 º USA
Phone: (800) 245-3321 / +1 (512) 478-9000
Web: ACFE.com º ihfo@ACFE.com
©2010 Association of Certified Fraud Examiners, Inc.
The ACFE logo, ACFE seal, Certified Fraud Examiner and Fraud Magazine
®

are trademarks owned by the Association of Certified Fraud Examiners, Inc.

Letter from the President

When the ACFE published its first Report to the Nation on Occupational Fraud and Abuse in 1996, it broke new ground in anti-fraud research by providing an analysis of the costs, the methodologies and the perpetrators of fraud within U.S. organizations. The collective body of knowledge contained in the first five editions of the Report to the Nation — published between 1996 and 2008 — has become the most authoritative and widely quoted research publication on occupational fraud. Now, for the first time, the data contained in the Report have been drawn from fraud cases throughout the world. As readers will see, it reflects the truly universal nature of occupational fraud. This expansion of our research is denoted in the modified title for this study, which has now become the Report to the Nations on Occupational Fraud and Abuse. The information contained in this report is based on 1,843 cases of occupational fraud that were reported by the Certified Fraud Examiners (CFEs) who investigated them. These offenses occurred in more than 100 countries on six continents, and more than 43% took place outside the United States. What is perhaps most striking about the data we gathered is how consistent the patterns of fraud are around the globe. While some regional differences exist, for the most part occupational fraud seems to operate similarly whether it occurs in Europe, Asia, South America or the United States. The Report to the Nations is the brainchild of the ACFE’s founder and Chairman, Dr. Joseph T. Wells, CFE, CPA who throughout his career has contributed more to the study of fraud and the development of the anti-fraud profession than any other person. On behalf of the ACFE, and in honor of its founder, Dr. Wells, I am pleased to present the 2010 Report to the Nations on Occupational Fraud and Abuse to practitioners, business and government organizations, academics, the media and the general public throughout the world. The information contained in this Report will be invaluable to those who seek to deter, detect, prevent or simply understand the global economic impact of occupational fraud.

James D. Ratley, CFE President, Association of Certified Fraud Examiners

2 | 2010 REPORT TO THE NATIONS ON OCCUPATIONAL FRAUD AND ABUSE

!"#$%&'(&)'*+%*+,
Executive Summary .............................................................................................................................................................4 Introduction ..........................................................................................................................................................................6 The Cost of Occupational Fraud ..........................................................................................................................................8 How Occupational Fraud Is Committed ............................................................................................................................10

Detection of Fraud Schemes .............................................................................................................................................16

Victim Organizations ..........................................................................................................................................................24

Perpetrators ........................................................................................................................................................................48

Methodology ......................................................................................................................................................................75 Appendix — Breakdown of Geographic Regions by Country ..........................................................................................78 Fraud Prevention Checklist ................................................................................................................................................80 About the ACFE ..................................................................................................................................................................82

2010 REPORT TO THE NATIONS ON OCCUPATIONAL FRAUD AND ABUSE | 3

Executive Summary

Summary of Findings
Survey participants estimated that the typical organization loses 5% of its annual revenue to fraud. Applied to the estimated 2009 Gross World Product, this figure translates to a potential total fraud loss of more than $2.9 trillion. The median loss caused by the occupational fraud cases in our study was $160,000. Nearly one-quarter of the frauds involved losses of at least $1 million. The frauds lasted a median of 18 months before being detected. Asset misappropriation schemes were the most common form of fraud in our study by a wide margin, representing 90% of cases — though they were also the least costly, causing a median loss of $135,000. Financial statement fraud schemes were on the opposite end of the spectrum in both regards: These cases made up less than 5% of the frauds in our study, but caused a median loss of more than $4 million — by far the most costly category. Corruption schemes fell in the middle, comprising just under one-third of cases and causing a median loss of $250,000. Occupational frauds are much more likely to be detected by tip than by any other means. This finding has been consistent since 2002 when we began tracking data on fraud detection methods. Small organizations are disproportionately victimized by occupational fraud. These organizations are typically lacking in anti-fraud controls compared to their larger counterparts, which makes them particularly vulnerable to fraud. The industries most commonly victimized in our study were the banking/financial services, manufacturing and government/public administration sectors. Anti-fraud controls appear to help reduce the cost and duration of occupational fraud schemes. We looked at the effect of 15 common controls on the median loss and duration of the frauds. Victim organizations that had these controls in place had significantly lower losses and time-to-detection than organizations without the controls.

This Report is based on data compiled from a study of 1,843 cases of occupational fraud that occurred worldwide between January 2008 and December 2009. All information was prothose cases. The fraud cases in our study came from 106 nations — with more than 40% of cases

of occupational fraud.

One-fourth of the frauds in this Report caused at least $1 million in losses.
High-level perpetrators cause the greatest damage to their organizations. Frauds committed by owners/executives were more than three times as costly as frauds committed by managers, and more than nine times as costly as employee frauds. Executive-level frauds also took much longer to detect.

4 | 2010 REPORT TO THE NATIONS ON OCCUPATIONAL FRAUD AND ABUSE

The threat of surprise audits increases employees’ perception that fraud will be detected and thus has a strong deterrent effect on potential fraudsters. but they ranked comparatively poorly in both detecting fraud and limiting losses due to fraud. tool in the fight against fraud. as they might be the key to detecting or deterring a fraud. While surprise audits can be useful in detecting fraud. employees must be trained in what constitutes fraud. Employee education is the foundation of preventing and detecting occupational fraud. Audits are clearly important and can have a strong preventative effect on fraudulent behavior. 2010 REPORT TO THE NATIONS ON OCCUPATIONAL FRAUD AND ABUSE | 5 .More than 80% of the frauds in our study were committed by individuals in one of six departments: accounting. sales. however. effective fraud prevention measures are critical. Conclusions and Recommendations Occupational fraud is a global problem. Fraud perpetrators often display warning signs that they are engaging in illicit activity. These red flags — such as living beyond one’s means or exhibiting control issues — will not be identified by traditional controls. Internal controls alone are insufficient to fully prevent occupational fraud. but also that organizations that have anti-fraud training for employees and managers experience lower fraud losses. occupational fraud perpetrators only commit fraud if they believe they will not be caught. In general. More than 85% of fraudsters in our study had never been previously charged or convicted for a fraud-related offense. Fraudsters exhibit behavioral warning signs of their misdeeds. Organizations should implement a fraud prevention checklist similar to that on page 80 in order to help eliminate fraud before it occurs. perpetrator characteristics and anti-fraud controls are similar regardless of where the fraud occurred. yet underutilized. their most important benefit is in preventing fraud by creating a perception of detection. External audits were the control mechanism most widely used by the victims in our survey. Though it is important for organizations to have strategic and effective anti-fraud controls in place. such as hotlines and setting an ethical tone for their employees. Staff members are an organization’s top fraud detection method. Managers and owners of small businesses should focus their control investments on the most cost-effective mechanisms. Surprise audits are an effective. Organizations should implement hotlines to receive tips from both internal and external sources. Our data show not only that most frauds are detected by tips. those organizations tended to have lower fraud losses and to detect frauds more quickly. Though some of our findings differ slightly from region to region. Such reporting mechanisms should allow anonymity and confidentiality. Organizations tend to over-rely on audits. and employees should be encouraged to report suspicious activity without fear of reprisal. The most common behavioral red flags displayed by the perpetrators in our study were living beyond their means (43% of cases) and experiencing financial difficulties (36% of cases). internal controls will not prevent all fraud from occurring. Less than 30% of victim organizations in our study conducted surprise audits. these organizations have far fewer controls in place to protect their resources from fraud and abuse. This finding is consistent with our prior studies. but they should not be relied upon exclusively for fraud detection. Generally speaking. Given the high costs of occupational fraud. operations. nor will they detect most fraud once it begins. customer service or purchasing. Fraud reporting mechanisms are a critical component of an effective fraud prevention and detection system. as well as those most likely to help prevent and detect the specific fraud schemes that pose the greatest risks to their businesses. Auditors and employees alike should be trained to recognize the common behavioral signs that a fraud is occurring and encouraged not to ignore such red flags. how it hurts everyone in the company and how to report any questionable activity. Small businesses are particularly vulnerable to fraud. most of the trends in fraud schemes. executive/upper management.

however. This report focuses on the category of fraud — occupational fraud — in which an employee abuses his or her position within the organization for personal gain. To that end. This expansion allows us to more fully explore the truly global nature of occupational fraud and provides an enhanced view into the severity and impact of these crimes. Examine the characteristics of the employees who commit occupational fraud and abuse. we have included several comparisons of our current findings with those from our 2008 Report. occupational fraud may be defined as: The use of one’s occupation for personal enrichment through the deliberate misuse or misapplication of the employing organization’s resources or assets. we have nonetheless included these prior-study comparisons. 6 | 2010 REPORT TO THE NATIONS ON OCCUPATIONAL FRAUD AND ABUSE .S. More formally. no trust violations have the potential to be as harmful as those committed by the very individuals who are relied upon to make the organization successful: its employees. we have released five updated editions — in 2002. One of the ACFE’s primary missions is to educate antifraud professionals and the general public about the serious threat occupational fraud poses. the ACFE released its Report to the Nation on Occupational Fraud and Abuse.-only data from our 2010 research when noteworthy discrepancies in our current findings are present. In our 2010 Report. In 1996. we have included comparisons of 2008 data with both all-case data and U. we add to and modify the questions we ask of our survey participants in order to enhance the quality of the data we collect. Categorize the ways in which serious fraud and abuse occur. At their core. which was the largest known privately funded study on the subject at the time. the ways perpetrators attempt to part victims from their money are extremely diverse and continually evolving. Like the first Report. Although the populations of respondents for the two studies are not entirely analogous. Since the inception of the Report to the Nation more than a decade ago. To enhance data clarity. for the first time ever. For businesses. 2008 and the current version in 2010. we are able to compare the anti-fraud measures taken by organizations worldwide in order to give fraud fighters everywhere the most applicable and useful information to help them in their fraud prevention and detection efforts.Introduction A wide variety of crimes and swindles fall under the umbrella of fraud. With each new edition of the Report. each subsequent edition has been based on detailed case information provided by Certified Fraud Examiners (CFEs). The stated goals of the first Report were to: Summarize the opinions of experts on the percentage and amount of organizational revenue lost to all forms of occupational fraud and abuse. we have. This evolution of the Report to the Nation has enabled us to continue to draw more meaningful information from the experiences of CFEs and the frauds they encounter. 2006. encompassing a wide range of misconduct by employees at every organizational level. as we believe interesting and useful trends can be seen by comparing and contrasting the frauds reported in the two studies. Occupational fraud schemes can be as simple as pilferage of company supplies or manipulation of timesheets. or as complex as sophisticated financial statement frauds. From Ponzi schemes and identity theft to data breaches and falsified expense reports. A Note to Readers: Throughout this Report. it is important to note that the 2010 data include reported frauds from CFEs in 106 countries. we have undertaken extensive research to provide an in-depth look at the costs and trends in occupational fraud. However. Determine what kinds of organizations are victims of occupational fraud and abuse. 2004. Additionally. all frauds involve a violation of trust. This definition is very broad. widened our study to include cases from countries outside the United States. while the 2008 data pertain to frauds reported only by CFEs in the United States.

Occupational Fraud and Abuse Classification System Corruption Asset Misappropriation Fraudulent Statements Conflicts of Interest Purchasing Schemes Sales Schemes Bribery Illegal Gratuities Economic Extortion Financial NonFinancial Employment Credentials Internal Documents External Documents Invoice Kickbacks Asset/Revenue Overstatements Timing Differences Ficticious Revenues Concealed Liabilities and Expenses Improper Disclosures Improper Asset Valuations Asset/Revenue Understatements Bid Rigging Other Other Cash Non-Cash Larceny Skimming Misuse Larceny Asset Requisitions and Transfers False Sales and Shipping Purchasing and Receiving Unconcealed Larceny Cash on Hand From the Deposit Other Sales Receivables Write-off Schemes Lapping Schemes Unconcealed Refunds and Other Unrecorded Understated Fraudulent Disbursements Billing Schemes Payroll Schemes Expense Reimbursement Schemes Mischaracterized Expenses Overstated Expenses Fictitious Expenses Multiple Reimbursements Check Tampering Register Disbursements Shell Company Ghost Employees Commission Schemes Workers Compensation Forged Maker False Voids Non-Accomplice Vendor Personal Purchases Forged Endorsement False Refunds Altered Payee Concealed Checks Authorized Maker Falsified Wages 2010 REPORT TO THE NATIONS ON OCCUPATIONAL FRAUD AND ABUSE | 7 .

accordingly.The Cost of Occupational Fraud Measuring the cost of occupational fraud is an important. endeavor.html) 8 | 2010 REPORT TO THE NATIONS ON OCCUPATIONAL FRAUD AND ABUSE . yet incredibly challenging. because there is no way to precisely calculate the size of global fraud losses. One of the primary characteristics of fraud is that it is clandestine. rather than any specific data or factual observations. the full amount of losses might not be uncovered. the best estimate of anti-fraud professionals with a frontline view of the problem may be as reliable a measure as we are able to make. The median response was that the average organization annually loses 5% of its revenues to fraud. or hidden. Consequently. the true cost is incalculable.07 trillion1 would result in a projected total global fraud loss of more than $2. In any event.9 trillion. quantified or reported. Readers should note that this estimate is based solely on the opinions of 1.843 anti-fraud experts. United States Central Intelligence Agency. it should not be interpreted as a literal representation of the worldwide cost of occupational fraud. determining such an approximation is critical to illustrate the pandemic and destructive nature of white-collar crime. and. at best.gov/ library/publications/the-world-factbook/geos/xx. 1 in an accurate manner. of those that are. Applying this percentage to the 2009 estimated Gross World Product of $58. it is undeniable that the overall cost of occupational fraud is immense. We asked each CFE who participated in our survey to provide his or her best estimate of the percentage of annual revenues that the typical organization loses to fraud in a given year. The World Factbook (https://www. The typical organization loses 5% of its annual revenues to occupational fraud. certainly costing organizations hundreds of billions or trillions of dollars each year. However. any measurement of occupational fraud costs will be. an estimate. Nonetheless. Arguably. The inherently clandestine nature of fraud means that many cases will never be revealed.cia. almost all fraud involves the attempted concealment of the crime.

000 – $49.3% 25% 23.000.000 $1.6% 8. Nearly one-third of the fraud schemes caused a loss to the victim organization of more than $500.000.4% 5% 2.822 of the 1.999 $500. 2010 REPORT TO THE NATIONS ON OCCUPATIONAL FRAUD AND ABUSE | 9 . dollars.2 The median loss for these cases was $160.4% 0% Less than $1.843 frauds reported to us in our study. and almost one-quarter of all reported cases topped the $1 million threshold.7% Percent of Cases 20% 18.000 – $99.Distribution of Losses We received information about the total dollar loss for 1.000 and up Dollar Loss 2 Although this Report includes fraud cases from more than 100 nations.S.2% 10. Distribution of Dollar Losses 30% 29. all monetary amounts presented throughout this Report are in U.999 $10.000 – $999.000 – $499.999 $100.999 $1.000 – $9.000.4% 15% 10% 7.999 $50.

or herself or someone else. falsifying expense reports and forging company checks. As indicated in the following charts. extortion and a conflict of interest. occurring in just under one-third of all cases involved in our study and causing a median loss of $250. research we have broken down the schemes reported to us asset misappropriation. asset misappropriations are by far both the most frequent and the least costly form of occupational fraud. Corruption schemes fell in the middle category in both respects. Asset misappropriations are those schemes in which the perpetrator steals or misuses an organization’s resources. Common methods of fraudulent financial statement manipulation include recording fictitious revenues.How Occupational Fraud Is Committed Previous ACFE research has identified three primary categories of occupational fraud used by individuals to defraud their employers. concealing liabilities or expenses and artificially inflating reported assets. Financial statement fraud is the most costly form of occupational fraud. but caused a median loss of more than $4 million. These schemes were present in less than 5% of the cases reported to us. Examples of corruption schemes include bribery.000. On the other end of the spectrum are cases involving financial statement fraud. statement fraud. causing a median loss of more than $4 million. 10 | 2010 REPORT TO THE NATIONS ON OCCUPATIONAL FRAUD AND ABUSE . Corruption schemes involve the employee’s use of his or her influence in business transactions in a way that violates his or her duty to the employer for the purpose of obtaining a benefit for him. These frauds include schemes such as skimming cash receipts. Financial statement fraud schemes are those involving the intentional misstatement or omission of material information in the organization’s financial reports.

2010 REPORT TO THE NATIONS ON OCCUPATIONAL FRAUD AND ABUSE | 11 .Occupational Frauds by Category — Frequency3 2010 Asset Misappropriation 86.000 Median Loss 3 The sum of percentages in this chart exceeds 100% because several cases involved schemes from more than one category.000.100.8% 10.000 $2.000 $5.8% Corruption 26.000 2008 Type of Fraud $250.3% 88.9% Financial Statement Fraud 4.7% 2008 Type of Fraud 32.3% 0% 20% 40% 60% 80% 100% Percent of Cases Occupational Frauds by Category — Median Loss 2010 Financial Statement Fraud $4.000.000 $150.000.000.000 $3.000.000 Corruption $375.000 $0 $1.000 Asset Misappropriation $135.000.000 $2.000 $4.

there was a much lower percentage of financial statement cases in this study (four percent) as compared to 2008 (ten percent). In the following charts. while our 2008 data contain only U. cases.S.3% 0% 20% 40% 60% 80% 100% Percent of Cases The sum of percentages in this chart exceeds 100% because several cases involved schemes from more than one category. only) — Frequency4 2010 Asset Misappropriation 89. while financial statement fraud remained the least common and most costly form of fraud among U. our 2010 data include fraud cases from countries throughout the world.S.9% Corruption 26.S.S. Interestingly.9% Financial Statement Fraud 4. we isolated the U. 4 12 | 2010 REPORT TO THE NATIONS ON OCCUPATIONAL FRAUD AND ABUSE . the median losses for all three categories of fraud were notably smaller in 2010 than they were in 2008. cases from our current study to make a more direct comparison to our 2008 data.How Occupational Fraud Is Committed As previously mentioned.3% 10.7% 2008 Type of Fraud 21. Occupational Frauds by Category (U.8% 88.-based cases. Additionally.

000.0% 2010 REPORT TO THE NATIONS ON OCCUPATIONAL FRAUD AND ABUSE | 13 .000 Median Loss In addition to observing the frequency and median losses caused by the three categories of fraud.000 $1.3% Financial Statement Fraud 68. of the total reported losses that were attributable to a specific scheme type.000.730.000.8% Corruption 11. 11% by corruption and 68% by fraudulent financial statements. As indicated in the chart to the right.000 $0 $500.000 Asset Misappropriation $100.000 $150.000 $2. The cases in our study represented a combined total loss of more than $18 billion.000 Corruption $375. Percent of Total Reported Dollar Losses Asset Misappropriation 20. 21% were caused by asset misappropriation schemes.000 2008 Type of Fraud $175.Occupational Frauds by Category (U. we analyzed the proportion of the total losses suffered based on scheme category.S. only) — Median Loss 2010 Financial Statement Fraud $1.000 $2.000 $1.500.

We divided asset misappropriation schemes into nine sub-categories. payroll and fraudulent register disbursement schemes — involve fraudulent disbursements of cash. with a median duration of 27 months. supplies. cases involving financial statement fraud — the most costly form of fraud — lasted the longest. expense reimbursement. The next five sub-categories — billing. such as sales revenues and accounts receivable collections. intellectual property and proprietary information. Fraudulent register disbursements. but also tended to be detected the soonest. these frauds account for approximately 85% of all asset misappropriations. The eighth form of cash misappropriation targets cash the organization has on hand. it is instructional to further delineate the methods used by employees to embezzle organizational assets. Duration of Fraud Schemes In addition to examining the monetary cost of the fraud cases reported to us. check tampering.How Occupational Fraud Is Committed Asset Misappropriation Sub-Schemes With nearly 90% of occupational frauds involving some form of asset misappropriation. were not only the least costly form of fraud in our study. The table on page 15 provides the frequency and median loss associated with each asset misappropriation sub-category. including inventory. The first eight sub-categories represent schemes targeting cash. we analyzed the length of time these schemes lasted before being detected. such as petty cash funds or cash in a vault. investments. on the other hand. The median duration — the time period from when the fraud first occurred to when it was discovered — for all cases in our study was 18 months. fixed assets. Not surprisingly. as illustrated in the table on page 15. Median Duration of Fraud Based on Scheme Type Financial Statement Fraud Check Tampering Expense Reimbursements Payroll Billing Corruption Cash on Hand Skimming Larceny Non-Cash Register Disbursement 0 5 10 27 24 24 24 24 18 18 18 18 15 12 Scheme Type 15 20 25 30 Median Months to Detection 14 | 2010 REPORT TO THE NATIONS ON OCCUPATIONAL FRAUD AND ABUSE . Two of the sub-schemes — skimming and cash larceny — involve pilfering incoming cash receipts. The final sub-category of asset misappropriations covers the theft or misuse of non-cash assets.

3% $90. forging or altering a check drawn on one of the organization’s bank accounts 274 13. we will break down our analysis of the fraud schemes into 11 categories — corruption. and instead pockets the money Employee steals cash and checks from daily receipts before they can be deposited in the bank 267 14. inflated invoices or invoices for personal purchases Employee creates a shell company and bills employer for services not actually rendered Employee purchases personal items and submits invoice to employer for payment Employee files fraudulent expense report.0% $23.000 5 The sum of percentages in this table exceeds 100% because several cases involved asset misappropriation schemes from more than one category.8% $100. for the remainder of the Report. but does not record the sale. deposits it into his own bank account Employee claims overtime for hours not worked Employee adds ghost employees to the payroll Employee fraudulently voids a sale on his cash register and steals the cash 55 3. claiming personal travel. makes them out to himself or an accomplice Employee steals outgoing check to a vendor.000 Cases Reported Percent of all cases5 Median Loss Cash Larceny 181 9.5% $72.0% $128.Note: Because asset misappropriation schemes are both so common and so diverse in their methods.6% $23.000 278 15. financial statement fraud and the nine sub-categories of asset misappropriation — so as to provide a meaningful understanding of the full spectrum of ways in which employees defraud their employing organizations. 2010 REPORT TO THE NATIONS ON OCCUPATIONAL FRAUD AND ABUSE | 15 .000 479 26.4% $131.000 Expense Reimbursements Check Tampering Any scheme in which an employee makes a claim for reimbursement of fictitious or inflated business expenses Any scheme in which a person steals his employer’s funds by intercepting.1% $33.5% $60.000 157 8.000 Payroll Any scheme in which an employee causes his employer to issue a payment by making false claims for compensation Cash Register Disbursements Any scheme in which an employee makes false entries on a cash register to conceal the fraudulent removal of cash Other Asset Misappropriation Schemes Cash on Hand Misappropriations Non-Cash Misappropriations Any scheme in which the perpetrator misappropriates cash kept on hand at the victim organization’s premises Any scheme in which an employee steals or misuses non-cash assets of the victim organization Employee steals cash from a company vault Employee steals inventory from a warehouse or storeroom Employee steals or misuses confidential customer financial information 121 12.000 156 16.000 Schemes Involving Fraudulent Disbursements of Cash Billing Any scheme in which a person causes his employer to issue a payment by submitting invoices for fictitious goods or services. etc. Asset Misappropriation Sub-Categories Category Description Examples Schemes Involving Theft of Cash Receipts Skimming Any scheme in which cash is stolen from an organization before it is recorded on the organization’s books and records Any scheme in which cash is stolen from an organization after it has been recorded on the organization’s books and records Employee accepts payment from a customer. nonexistent meals. Employee steals blank company checks.

8% Detection Method 0% 10% 20% 30% 40% 50% Percent of Cases 16 | 2010 REPORT TO THE NATIONS ON OCCUPATIONAL FRAUD AND ABUSE . Tips were by far the most common detection method in our study. police notification and confession.Detection of Fraud Schemes One of the principal goals of our research is to identify how past frauds were detected so that organizations can apply that knowledge to their future anti-fraud efforts. Tips have been far and away the most common means of detection in every study since 2002. It is also noteworthy that 11% of frauds were detected through channels that lie completely outside of the traditional anti-fraud control structure: accident.9% 8.2% 4.4% 13. the victim organization either had to stumble onto the fraud or be notified of it by a third party in order to detect it. Management review and internal audit were the second and third most common forms of detection.6% 1.3% 6. In other words. This is consistent with the findings in our prior reports.6% 2.1% 5. respectively. 11% of the time. Frauds are much more likely to be detected by tips than by any other method.2% 15. uncovering 15% and 14% of frauds. catching nearly three times as many frauds as any other form of detection. when we began tracking the data. Initial Detection of Occupational Frauds Tip Management Review Internal Audit By Accident Account Reconciliation Document Examination External Audit Surveillance/Monitoring Notified by Police Confession IT Controls 40.8% 1. Respondents to our survey were asked to identify how the Three times as many frauds in our study were uncovered by a tip as by any other method.0% 0.

Those organizations also tended to detect frauds seven months earlier than their counterparts. that tip was reported through an organization’s fraud hotline. In organizations that had hotlines.5% 1. we will refer to all reporting mechanisms as hotlines in this study. employees were the most common source of fraud tips. most third-party hotline systems offer programs to raise awareness about how to report misconduct. Perhaps most important.e. The ability to report fraud 6 0% ee Source of Tips repeatedly been shown to be the most effective way to catch fraud. only 34% of cases were detected by tips. if anything. but also to customers.2% Source of Tips Percent of Tips 30% 20% 10% 3.4% 12. anonymously is key because employees often fear making reports due to the threat of retaliation from superiors or negative reactions from their peers. This is important because tips have 6 For simplicity’s sake. the impact of tips is. understated by the fact that so many organizations fail to implement fraud reporting systems..8% 17. vendors. as noted on page 43. In 67% of the cases where there was an anonymous tip. which suggests that 50% 40% 49. provided at least 34% of fraud tips. organizations that had fraud hotlines suffered much smaller fraud losses than organizations without hotlines. 2010 REPORT TO THE NATIONS ON OCCUPATIONAL FRAUD AND ABUSE | 17 do r eh O old w er n / Co er m pe tit Pe or A r cq pe ua tr in ato ta r' nc s e ar er om oy ou m s Em Cu A no ny Sh Ve n pl st . Such systems enable employees to anonymously report fraud or misconduct by phone or through a web-based portal. the better it should be at detecting fraud and limiting losses.8% 13. vendors and other external stakeholders. 47% of frauds were detected by tips. one would expect that the presence of a fraud hotline would enhance fraud detection efforts and foster more tips. Also. non-company sources) fraud reporting policies and programs should be publicized not only to employees. The better an organization is at collecting and responding to fraud tips. This strongly suggests that hotlines are an effective way to encourage tips from employees who might otherwise not report misconduct. This turns out to be true.Source of Tips Not surprisingly. Consequently.7% 2. competitors and acquaintances (i. As seen on page 18. However. customers.1% Impact of Anonymous Reporting Mechanisms (Hotlines) While tips have consistently been the most common way to detect fraud. while in organizations without hotlines. the presence of fraud hotlines correlated with an increase in the number of cases detected by a tip.

5% 3. both of which were also true in our 2008 study.3% 1.8% 47. Government agencies had the highest rate of detection by tips and had a proportionately high rate of frauds caught through external audit.1% Organizations With Hotlines Organizations Without Hotlines 15.1% 0% 10% 20% 30% 40% 50% Percent of Cases Detection Methods Based on Organization Type The chart on page 19 shows how frauds were detected based on the victim’s organization type.6% 11. Detecting Fraud in Small Businesses Small businesses historically tend to suffer disproportionately high occupational fraud losses. but we still saw that 31% of all occupational frauds were committed against small businesses (the highest rate of any category) and the median loss in those schemes was $155. We see that privately owned companies tended to have the fewest frauds detected by tip and the most frauds caught by accident.9% 11.7% Detection Method By Accident Document Examination Surveillance/Monitoring External Audit IT Controls Notified by Police Confession 3. The trend was not as pronounced in this study as in past years.8% 4.7% 6.4% 0.9% 1.3% 0.4% 1.5% 33. according to our previous reports.4% 7.000 (see page 29). Publicly held companies tended to detect more frauds by management review and internal audit than their counterparts.0% 2. 18 | 2010 REPORT TO THE NATIONS ON OCCUPATIONAL FRAUD AND ABUSE .2% 1.2% 16.Detection of Fraud Schemes Impact of Hotlines Tip Internal Audit Management Review Account Reconcilliation 4. One reason that small businesses are particularly good targets for occupational fraud is that they tend to have far fewer anti-fraud controls than larger organizations (see page 39).7% 15.7% 7.0% 2.

2% Detection Method Account Reconcilliation 8.1% 1.0% 5.1% 35. a relatively large percentage of frauds are caught by accident at small companies — nearly twice as many as at larger organizations.4% 1.6% 3. and only 8% are detected by an internal audit.8% 43.6% 16.0% 15.1% 46.3% Not-for-Profit Private Company Public Company Government Management Review Internal Audit By Accident 11.7% 11.5% 6.2% 41.9% 6.6% 6.4% External Audit Surveillance/Monitoring Notified by Police Confession IT Controls 0% 10% 20% 30% 40% 50% Percent of Cases When we look at how small businesses detect frauds.8% 1.2% 1.6% 11.Initial Detection Method by Organization Type Tip 13.2% Document Examination 6. 2010 REPORT TO THE NATIONS ON OCCUPATIONAL FRAUD AND ABUSE | 19 .5% 1.5% 1.4% 1.7% 15.8% 2. According to the chart on page 20.4% 0.6% 10.6% 0.0% 1.3% 7. it is apparent that they catch a much lower proportion of schemes through tips or internal audits than larger organizations.9% 8. only 33% of small business frauds are detected by a tip.8% 5.2% 1.5% 5.2% 2.5% 6.3% 3.9% 4.0% 3.4% 17.2% 0. Many of these discrepancies are likely due to the low rates of control implementation at small businesses.2% 2.0% 2. Additionally.

0% 8.1% 7.2% 0.1% 15.001 Cases Tip Management Review Internal Audit By Accident Account Reconciliation Document Examination External Audit Notified by Police Surveillance/Monitoring IT Controls Confession 37.Detection of Fraud Schemes Initial Detection of Frauds in Small Businesses Tip Management Review By Accident 6.1% 33.8% 17.1% 13.3% 6. In all but two regions.4% <100 Employees 100+ Employees Detection Method Account Reconcilliation Internal Audit Document Examination External Audit Notified by Police Surveillance/Monitoring Confession 9.2% 16.9% 1.0% 0% 10% 20% 30% 40% 50% Percent of Cases Detection of Occupational Fraud Based on Region The following charts show how frauds were detected based on the region in which they occurred.7% 0.8% Detection Method 0% 10% 20% 30% 40% 50% Percent of Cases 7 See Appendix for a listing of countries included in each region.7% 1.3% 15.9% 4.2% 1.3% 43. following tips.7% 1.7% IT Controls 0.1% 2.9% 1. management review and internal audit were the second and third most common means of detection.5% 2.1% 3. 20 | 2010 REPORT TO THE NATIONS ON OCCUPATIONAL FRAUD AND ABUSE .2% 1.7% 9.2% 7. tips were responsible for detecting the most occupational frauds by a wide margin.3% 2.7 In every region.4% 5.2% 4.2% 6. The percentage of cases detected by tips ranged from a high of 50% (in Africa) to a low of 38% (in the United States).8% 12. Detection in the United States — 1.

3% 14.2% 1.5% 4.5% 5.4% 1.8% 5.Detection in Asia — 293 Cases Tip Internal Audit Management Review By Accident External Audit Account Reconciliation Document Examination Surveillance/Monitoring Confession Notified by Police IT Controls 42.8% 5.4% 16.6% 0.0% Detection Method 0% 10% 20% 30% 40% 50% Percent of Cases 2010 REPORT TO THE NATIONS ON OCCUPATIONAL FRAUD AND ABUSE | 21 .7% 2.7% Detection Method 0% 10% 20% 30% 40% 50% Percent of Cases Detection in Europe — 155 Cases Tip Internal Audit Management Review By Accident Account Reconciliation Document Examination External Audit Surveillance/Monitoring Notified by Police IT Controls Confession 40.2% 3.3% 0.7% 0.3% 11.9% 5.9% 3.4% 2.0% 17.3% 8.1% 6.

0% 1.1% 1.9% 0.1% 4.2% 5.1% 4.2% 4.9% 9.5% 1.3% 5.4% 4.0% 6.5% 11.0% Detection Method 0% 10% 20% 30% 40% 50% Percent of Cases Detection in Canada — 97 Cases Tip Management Review Internal Audit Account Reconciliation By Accident Document Examination External Audit Surveillance/Monitoring Notified by Police Confession IT Controls 46.7% 9.4% 6.0% 0.Detection of Fraud Schemes Detection in Africa — 111 Cases Tip Management Review Internal Audit By Accident Account Reconciliation Surveillance/Monitoring Notified by Police External Audit Document Examination Confession IT Controls 49.9% 0.4% 15.5% 12.8% 0.0% Detection Method 0% 10% 20% 30% 40% 50% Percent of Cases 22 | 2010 REPORT TO THE NATIONS ON OCCUPATIONAL FRAUD AND ABUSE .

0% Detection Method 0% 10% 20% 30% 40% 50% Percent of Cases Detection in Oceania — 40 Cases Tip Management Review By Accident Internal Audit Surveillance/Monitoring Account Reconciliation External Audit Document Examination Notified by Police Confession IT Controls 45.0% 0.4% 0.0% 20.5% 10.5% 2.0% 0.0% 0.3% 12.Detection in Central/South America and the Caribbean — 70 Cases Tip Management Review External Audit Internal Audit Account Reconciliation Document Examination Surveillance/Monitoring Confession Notified by Police By Accident IT Controls 44.9% 10.0% 0.5% 0.0% 8.0% 0.3% 4.6% 4.3% 1.3% 14.0% Detection Method 0% 10% 20% 30% 40% 50% Percent of Cases 2010 REPORT TO THE NATIONS ON OCCUPATIONAL FRAUD AND ABUSE | 23 .5% 2.0% 12.0% 7.

cases reported. Of these.000 $186.5% 3. Similarly. The regional breakdowns on case data throughout this Report should consequently be read within this framework.797 of the cases that were reported to us. dollars) $105. We received information on the location of 1.000 $125.000 See Appendix for a listing of countries included in each region. for the first time in the history of our research on occupational fraud.S.7% 6. the cases discussed in this Report represent frauds perpetrated in 106 countries around the world.2% 5. Geographical Location of Victim Organizations8 Region United States Asia Europe Africa Canada Central/South America and the Caribbean Oceania 8 Number of Cases 1. a case involving fraud perpetrated at the Canadian office of a South American company would be considered a fraud that occurred in Canada. 43% occurred outside the United States. For example. Additionally.000 $600. we asked each respondent to provide was defrauded. For victim organizations with locations in more than one country. we opened up our study to include fraud cases investigated by CFEs outside the United States.8% 16.2% Median Loss (in U. As part of our survey. providing us with a true insight into the global plague of occupational fraud. broken down by region. we asked survey participants to choose the location where the primary perpetrator was located.000 $274. As a result.000 $338. due to the large number of U.Victim Organizations Geographical Location of Organizations As mentioned previously. Small organizations are particularly vulnerable to fraud. 24 | 2010 REPORT TO THE NATIONS ON OCCUPATIONAL FRAUD AND ABUSE .S.9% 2. and grouped the remaining countries by continent. The chart below shows the number and median loss of the cases reported to us.000 $205.6% 8.021 298 157 112 99 70 40 Percent of Cases 56. we separated North America into the United States and Canada. a fraud perpetrated at a European arm of a Japanese company would be classified as occurring in Europe.

9 United States — 1.0% 7.9% 16.4% 17.4% 8. 2010 REPORT TO THE NATIONS ON OCCUPATIONAL FRAUD AND ABUSE | 25 .0% 18.3% 2.5% 3.6% 4.8% 7.5% 10.8% 18.6% 6.6% 21.6% 10.7% 15.4% 12.7% 15.4% 11.4% 2.021 Cases Scheme Billing Corruption Check Tampering Skimming Non-Cash Expense Reimbursements Cash on Hand Payroll Cash Larceny Financial Statement Fraud Register Disbursements Asia — 298 Cases Scheme Corruption Billing Non-Cash Expense Reimbursements Skimming Cash on Hand Cash Larceny Financial Statement Fraud Check Tampering Payroll Register Disbursements Number of Cases 282 224 173 165 160 154 117 108 98 44 25 Percent of Cases 27.2% Number of Cases 79 41 31 24 23 17 12 10 10 7 5 Scheme Corruption Billing Non-Cash Expense Reimbursements Cash on Hand Cash Larceny Skimming Check Tampering Payroll Register Disbursements Financial Statement Fraud Number of Cases 55 38 24 19 16 15 13 11 6 3 2 Percent of Cases 49.7% 7.9% 21.5% 14.2% 15.1% 33.8% 11.4% Number of Cases 152 56 55 43 38 34 26 21 21 12 6 Percent of Cases 51.0% 4.The following tables illustrate the frequency of the 11 occupational fraud schemes — financial statement fraud.4% 4.1% 19.4% 6.1% 11.0% 14.0% Europe — 157 Cases Scheme Corruption Billing Non-Cash Expense Reimbursements Cash on Hand Skimming Cash Larceny Financial Statement Fraud Payroll Register Disbursements Check Tampering 9 Africa — 112 Cases Percent of Cases 50.3% 13.3% 26.8% 5. corruption and the nine asset misappropriation sub-schemes — for each region.8% The sum of percentages in these tables exceeds 100% because several cases involved schemes from more than one category.3% 14.6% 9.0% 2.7% 1.9% 16.6% 9.

000 26 | 2010 REPORT TO THE NATIONS ON OCCUPATIONAL FRAUD AND ABUSE .000 $1.1% 28. Corruption Cases by Region Region Asia Europe Africa Central/South America and the Caribbean Oceania United States Canada Number of Corruption Cases 152 79 55 33 16 224 21 Percent of all Cases in Region 51.000 $163.5% Corruption Cases by Region We compared the proportion and cost of cases involving corruption among the regional categories in our study.3% 49.0% Central/South America and the Caribbean — 70 Cases Scheme Corruption Billing Non-Cash Cash Larceny Skimming Cash on Hand Expense Reimbursements Financial Statement Fraud Check Tampering Payroll Register Disbursements Number of Cases 33 20 13 10 9 8 8 7 6 3 1 Percent of Cases 47.0% 30.0% 50.0% 8.1% 12.0% 7.2% 20.3% 1.5% 12.0% 2.1% 2.6% 14.0% 21.1% 47.5% 10.000 $175.2% 17.6% 4.2% 15.2% 12.4% 10.000.4% 11.5% 17.1% 9.2% Median Loss $330. it only reflects the specific fraud cases that were investigated and reported to us by the CFEs who took part in our study. Readers should keep in mind that this data does not necessarily reflect overall corruption levels within each region. The results are presented in the following table.0% 27.9% 11.0% 10.000 $250.6% 18.5% 2.1% 40.2% 21.1% 8.9% 21.1% 10.000 $800.Victim Organizations Canada — 99 Cases Scheme Billing Corruption Expense Reimbursements Check Tampering Non-Cash Payroll Skimming Cash Larceny Cash on Hand Register Disbursements Financial Statement Fraud Number of Cases 21 21 20 17 15 12 12 10 9 8 2 Percent of Cases 21.4% Oceania — 40 Cases Scheme Corruption Non-Cash Billing Check Tampering Skimming Cash on Hand Expense Reimbursements Cash Larceny Payroll Register Disbursements Financial Statement Fraud Number of Cases 16 12 11 7 5 4 4 3 2 1 1 Percent of Cases 40.3% 12.000 $208.5% 5.

Not-for-profit organizations were the least represented category. In addition to experiencing the most frauds. Government agencies had a median loss of $100. while not-for-profits lost a median of $90. In contrast.000 and $200. meaning that almost three-quarters of the victims represented in our study came from for-profit enterprises.000.000. the losses experienced by government agencies and not-for-profit organizations were about half as much. respectively (see page 28).Type of Organizations More than 40% of victim organizations in our study were privately owned businesses.1% 28.1% 39. Organization Type of Victim — Frequency 42.3% 18.1% 2010 2008 Private Company Type of Victim Organization Public Company 32. and nearly one-third were publicly traded companies.3% 0% 10% 20% 30% 40% 50% Percent of Cases 2010 REPORT TO THE NATIONS ON OCCUPATIONAL FRAUD AND ABUSE | 27 . private and public companies were also victim to the costliest schemes in our study. the median loss for the cases at these businesses was $231. with less than 10% of frauds taking place at these entities.6% 14.1% Not-for-Profit 9.4% Government 16. Sixteen percent of the frauds reported to us occurred at government agencies.000.

000 Not-for-Profit $90. small organizations — those with fewer than 100 employees — suffered the greatest percentage of the frauds in our 2010 study.000 $300.000 Government $100. 28 | 2010 REPORT TO THE NATIONS ON OCCUPATIONAL FRAUD AND ABUSE . Additionally.999 employees and 21% having more than 10. accounting for more than 30% of the victim organizations. the variation between size categories is relatively small. with 23% of victims having between 100 and 999 employees.000 to 9.000 Type of Victim Organization 2008 Public Company $200.000 $100.000 $0 $50.Victim Organizations Organization Type of Victim — Median Loss 2010 $278.000 $150. our research has historically shown that smaller organizations suffer disproportionately large losses due to occupational fraud. Organizations with fewer than 100 employees experienced the greatest median loss of all categories of victim organizations in our 2008 study.000 $109. Consequently.000 $142.000 $100. However.000 $200. that was not the case when we looked at the full body of data from our current survey. if any. we undertook additional analyses to see what effect. in which small organizations were involved in a much higher percent of frauds than any other category.000 $250.000 Private Company $231.000 employees. However. This relatively small disparity contrasts with our previous studies.000 Median Loss Size of Organizations Continuing the trend observed in our prior studies. The same was true in our 2006 study. the inclusion of cases from countries outside the United States had on these findings. 26% having 1.

9% 0% 5% 10% 15% 20% 25% 30% 35% 40% Percent of Cases Size of Victim Organization — Median Loss 2010 $200.000 $200.2% 2010 2008 <100 Number of Employees 100 — 999 22.000 $100.999 $139.000 $147.000 — 9.6% 18.000 $116.000 Median Loss 2010 REPORT TO THE NATIONS ON OCCUPATIONAL FRAUD AND ABUSE | 29 .000+ 20.9% 23.8% 38.000 10.0% 1.000 1.999 25.000+ $164.000 <100 $155.000 2008 Number of Employees 100 — 999 $200.Size of Victim Organization — Frequency 30.000 — 9.000 $176.000 $150.000 $0 $50.8% 20.0% 10.

the median losses were significantly greater at small organizations than at those with more than 100 employees. we can see that. Africa and Oceania were notably less than those experienced by their larger counterparts. Canada and the United States.S. the median losses experienced by small organizations in Central/South America and the Caribbean.000 1.000 $116.000 $150.000 $176.000 10. only) $200. 30 | 2010 REPORT TO THE NATIONS ON OCCUPATIONAL FRAUD AND ABUSE .Victim Organizations If we make a direct comparison of the U.000 $0 $50. the median losses suffered by the smallest organizations are greater than those suffered by larger organizations. This finding is similar to our observations in previous studies and suggests that small companies in the United States are indeed disproportionately harmed by occupational fraud.000 <100 $150.000 Median Loss An analysis of the nature of losses at small businesses becomes more interesting when we expand our examination to each region represented. though the median loss in each category is smaller absolutely.000 — 9. Size of Victim Organization (U. Asia.000 $100. cases from our current study to the data from 2008.000 2008 Number of Employees 100 — 999 $150.000 $147.000+ $84. Conversely.S. For the frauds perpetrated in Europe.S.999 $60.000 $200. cases only) — Median Loss 2010 (U.

000 $110.000.6% 10 The sum of percentages in this table exceeds 100% because several cases involved schemes from more than one category.000 $150. it is helpful to know the types of frauds that are most prevalent within these organizations. 2010 REPORT TO THE NATIONS ON OCCUPATIONAL FRAUD AND ABUSE | 31 .000 $400.000 $65.7% 26.000 $80.000 $250.000 $600.000 $200.9% 14. culture and many other factors. Nonetheless. processes.8% 14.000 Median Loss Methods of Fraud in Small Businesses Because the challenges faced by small businesses in combating occupational fraud are numerous and unique.000 $387.000 <100 Employees 100+ Employees Region United States Central/South America and the Caribbean Africa Oceania $0 $200.000 $800.000 $135.000 $200.3% 5. Small Businesses (<100 Employees) — 537 Cases Scheme Billing Check Tampering Corruption Skimming Expense Reimbursements Non-Cash Cash on Hand Payroll Larceny Financial Statement Fraud Number of Cases 154 140 137 116 90 80 79 72 66 30 Percent of Cases10 28.4% 12.5% 21.000 $195.7% 13. Such observations may help small businesses target their limited resources to those areas that pose the greatest risk. Of course.000 $258.000 $513.000 $1. the specific risks faced by any organization are largely dependent on its particular industry. examining which fraud schemes are most commonly perpetrated at small companies can aid us in better understanding the fraud issues faced by these businesses.000 $574.1% 25. operating environment.6% 16.Size of Victim Organizations — Median Loss by Region Europe Asia Canada $875.

5% 8.7% 6.9% 28.4% 5. they were less frequent within small companies than in bigger organizations.6% 8. In contrast. Skimming and payroll frauds were also more common in small organizations.1% 10.5% 3.9% 14.6% 4. although corruption schemes were the third most common fraud scheme faced by small businesses.1% 100+ Employees 25.0% 24.9% 18.3% 5% 10% 15% 20% 25% 30% 35% 40% Percent of Cases 32 | 2010 REPORT TO THE NATIONS ON OCCUPATIONAL FRAUD AND ABUSE .2% Type of Scheme Expense Reimbursement Non-Cash Cash on Hand Payroll Larceny Financial Statement Fraud Register Disbursements 0% 13.0% 2.5% 35. as the functions affected by such schemes — the check writing. cash collection and payroll functions.7% <100 Employees 26.2% 14. check tampering schemes were much more common at small organizations than at all other entities.Victim Organizations As the chart below illustrates. respectively — are more likely to be performed by a single individual. and are often subject to less oversight within a small organization than in a large company where duties are more segregated and authorization of transactions is more formalized. Methods of Fraud by Size of Victim Organization Billing Check Tampering Corruption Skimming 11. These trends stand to reason.7% 21.0% 16.4% 12.8% 14. such as a bookkeeper.

11 Industry of Victim Organizations (sorted by Frequency) Industry Banking/Financial Services Manufacturing Government and Public Administration Retail Healthcare Insurance Education Services (other) Construction Technology Transportation and Warehousing Oil and Gas Real Estate Services (professional) Arts.000 $120.4% 3.000 $513.3% 5. Forestry. Entertainment and Recreation Banking/Financial Services Healthcare Telecommunications Utilities Services (professional) Communications/Publishing Services (other) Retail Government and Public Administration Religious.000 $300.9% 6.7% 2. accounting for more than 16% of the frauds reported to us.000 $110. rather than as an indication of which industries are more or less likely to be victimized by fraud.000 Agriculture. Charitable or Social Services Education 11 There was a small sample of only 12 cases in this industry.000 $150.000.Industry of Organizations We looked at the industry classification of the organizations victimized by the fraud cases in our study.000 $200.000 $110.3% 5. but those cases caused a median loss of $1 million — by far the largest of any of the industries we examined.7% 16. In contrast.000 Number of Cases 12 42 57 57 27 193 62 65 77 91 49 298 107 37 45 51 16 88 119 176 41 90 Percent of Cases 0.9% 0. Fishing and Hunting Communications/Publishing Mining Industry of Victim Organizations (sorted by Median Loss) Industry Mining Wholesale Trade Oil and Gas Real Estate Number of Cases 298 193 176 119 107 91 90 88 77 65 62 57 57 51 49 45 42 41 37 27 16 12 Percent of Cases 16.000 $81.7% 2.5% 10.1% 1.8% 2.000 $109.000 $513. Entertainment and Recreation Utilities Wholesale Trade Religious.000 $180.9% 5. It is important to view this data as a representation of the companies that had CFEs investigate internal fraud cases within the last two years.5% 2.3% 2.000 $320.2% 2.9% 2.0% 4.000 $200.000 $478.6% 5.000 $1.000 $197.000 $71.1% 5.000 $109.000 $110. For example.8% 2.000 $475.000 $475.000 $85. The period of time covered by our survey — calendar years 2008 and 2009 — was filled with news stories of fraud in the banking sector.6% 3. Fishing and Hunting Manufacturing Transportation and Warehousing Technology Construction Insurance Arts.000 $300.000 $320.000 $131.000 $85.9% 4. the mining industry experienced the fewest frauds in our study.000 $75.9% 4. Forestry. the following tables do draw attention to some differences in the frequency and cost associated with occupational frauds among different sectors.6% 10.8% 0.4% 3.6% 9. 2010 REPORT TO THE NATIONS ON OCCUPATIONAL FRAUD AND ABUSE | 33 .2% 1.3% 3. so this finding is not unexpected.1% 2.5% 2.000 $131.000 $150.7% 9.000 $180.000 $197.000 $250.2% 3. the banking and financial services industry had the most cases.1% 2.000.000 $300.5% 0.6% 5.3% 3.0% Median Loss $1.7% Median Loss $175.8% 6.7% 3.000 $300.000 $250.000 $175. However. which may impact the reliability of the median loss data. Charitable or Social Services Telecommunications Agriculture.000 $71.000 $110.000 $81.3% 2.000 $120.000 $75.2% 3.000 $478.6% 4.

7% 9.8% 12 The sum of percentages in these tables exceeds 100% because several cases involved schemes from more than one category.3% 22. Similarly.3% 7.4% 11.7% 6.8% 21.8% 7.0% 14.8% 23. as retail establishments tend to have more inventory.7% 5. Examining the variation in schemes among industries underscores the need for organizations to consider the specific fraud risks they face when determining which processes and functions merit additional resources devoted to fraud prevention and detection.9% 37. both theft of non-cash assets and fraudulent register disbursements were much more common in the retail industry than in other sectors. 34 | 2010 REPORT TO THE NATIONS ON OCCUPATIONAL FRAUD AND ABUSE .4% 7.2% 17. For example.8% 8. Banking/Financial Services — 298 Cases Scheme Corruption Cash on Hand Billing Check Tampering Non-Cash Skimming Larceny Expense Reimbursements Financial Statement Fraud Payroll Register Disbursements Manufacturing — 193 Cases Scheme Corruption Billing Non-Cash Expense Reimbursements Check Tampering Skimming Payroll Cash on Hand Number of Cases 101 64 37 35 33 32 29 20 16 9 8 Percent of Cases 33.0% Larceny Financial Statement Fraud Register Disbursements Government and Public Administration — 176 Cases Scheme Corruption Billing Expense Reimbursements Non-Cash Larceny Check Tampering Skimming Cash on Hand Payroll Financial Statement Fraud Register Disbursements Retail — 119 Cases Scheme Non-Cash Corruption Skimming Larceny Billing Cash on Hand Register Disbursements Check Tampering Expense Reimbursements Financial Statement Fraud Payroll Number of Cases 39 26 19 17 16 16 14 10 8 7 3 Percent of Cases 32.12 Many of the findings are not surprising.0% 14.4% 10.4% 6.0% 2.Victim Organizations In the following tables.1% 10.4% 13.7% Number of Cases 75 73 45 43 22 20 20 15 14 14 2 Percent of Cases 38.2% 13.4% 2.9% 11. This makes sense. but occurred in 22% of the cases involving the banking and financial services industry.5% Number of Cases 57 43 32 30 25 24 23 21 20 5 5 Percent of Cases 32.7% 11.6% 13.and cash-register-based transactions than entities in other industries.8% 16.7% 5.4% 18. theft of cash on hand — which includes the theft of cash from a bank vault — accounted for just 12% of all cases combined.3% 1.3% 13.4% 11.1% 11.3% 11.9% 2.4% 10. we have presented the distribution of fraud schemes for all industries in which there were more than 50 reported cases.5% 12.8% 2.9% 21.4% 3.4% 24.

2% 24.2% 3.3% Education — 90 Cases Scheme Billing Corruption Skimming Expense Reimbursements Non-Cash Larceny Payroll Check Tampering Cash on Hand Financial Statement Fraud Register Disbursements Services (other) — 88 Cases Scheme Corruption Skimming Billing Check Tampering Payroll Expense Reimbursements Non-Cash Larceny Cash on Hand Financial Statement Fraud Register Disbursements Number of Cases 38 22 19 15 11 11 9 7 7 1 0 Percent of Cases 42.4% 21.1% 11.9% 14.0% Number of Cases 25 22 22 14 13 12 11 9 8 7 5 Percent of Cases 28.2% 26.6% 13.7% Construction — 77 Cases Scheme Corruption Billing Check Tampering Skimming Non-Cash Expense Reimbursements Payroll Larceny Financial Statement Fraud Cash on Hand Register Disbursements Technology — 65 Cases Scheme Corruption Billing Expense Reimbursements Non-Cash Check Tampering Financial Statement Fraud Skimming Cash on Hand Payroll Larceny Register Disbursements Number of Cases 35 23 14 12 12 10 7 7 4 3 0 Percent of Cases 45.4% 25.1% 29.2% 3.3% 3.6% 15.3% 8.2% 6.8% 7.4% 15.Healthcare — 107 Cases Scheme Corruption Skimming Billing Non-Cash Check Tampering Expense Reimbursements Payroll Cash on Hand Larceny Financial Statement Fraud Register Disbursements Insurance — 91 Cases Scheme Corruption Billing Check Tampering Skimming Non-Cash Cash on Hand Larceny Expense Reimbursements Payroll Financial Statement Fraud Register Disbursements Number of Cases 31 24 23 21 13 12 10 9 8 4 1 Percent of Cases 29.5% 29.5% 3.1% 0.6% 15.9% Number of Cases 30 19 15 13 9 9 8 7 6 3 3 Percent of Cases 33.5% 10.5% 19.6% 12.7% 0.0% 20.0% 25.2% 9.2% 7.0% 7.7% 6.0% Number of Cases 28 19 17 16 10 10 6 5 4 4 2 Percent of Cases 43.4% 9.1% 2010 REPORT TO THE NATIONS ON OCCUPATIONAL FRAUD AND ABUSE | 35 .2% 10.6% 12.1% 5.7% 12.9% 8.0% 22.9% 16.3% 9.8% 13.9% 18.2% 15.6% 3.0% 9.2% 9.7% 6.1% 9.4% 21.1% 16.9% 0.4% 7.2% 24.0% 15.2% 12.8% 1.9% 9.5% 14.1% 8.8% 7.0% 5.

0% 7.8% 14.8% 3.5% 12.0% 12.8% 9.3% 31.3% 3.3% 25.5% 7.1% 8.6% 21.5% 23.0% Number of Cases 15 14 12 9 6 5 5 5 4 2 0 Percent of Cases 29.6% 15.1% 8.Victim Organizations Transportation and Warehousing — 62 Cases Scheme Corruption Billing Non-Cash Payroll Skimming Larceny Financial Statement Fraud Check Tampering Expense Reimbursements Cash on Hand Register Disbursements Oil and Gas — 57 Cases Scheme Corruption Billing Expense Reimbursements Non-Cash Check Tampering Skimming Cash on Hand Larceny Financial Statement Fraud Payroll Register Disbursements Number of Cases 22 20 16 9 8 7 5 5 5 4 0 Percent of Cases 35.0% Real Estate — 57 Cases Scheme Billing Check Tampering Corruption Expense Reiumbursements Skimming Larceny Payroll Cash on Hand Non-Cash Financial Statement Fraud Register Disbursements Services (professional) — 51 Cases Scheme Billing Expense Reiumbursements Check Tampering Skimming Number of Cases Percent of Cases 19 18 12 12 11 9 8 8 7 2 0 33.5% 32.6% 11.0% 14.5% 0.1% 19.4% 27.9% 0.8% 7.3% 3.5% 17.8% 9.5% 3.9% 11.4% 31.8% 14.8% 9.3% 8.0% 10.0% 5.0% Corruption Payroll Cash on Hand Larceny Financial Statement Fraud Non-Cash Register Disbursements 36 | 2010 REPORT TO THE NATIONS ON OCCUPATIONAL FRAUD AND ABUSE .5% 0.8% 14.3% 15.0% Number of Cases 31 18 9 8 6 4 4 3 2 2 0 Percent of Cases 54.1% 6.5% 0.1% 21.

3% 29.6% 11. Corruption Cases by Industry Industry Mining Oil and Gas Wholesale Trade Construction Technology Manufacturing Agriculture. Forestry.4% 47. More than 45% of the frauds that occurred in these industries. For example.1% 14.8% 21. along with those in the wholesale trade sector.9% 33. Charitable or Social Services Services (professional) 13 Number of Cases 12 57 42 77 65 193 27 45 62 298 91 176 16 107 88 49 90 119 37 27 41 51 Number of Corruption Cases 7 31 20 35 28 75 10 16 22 101 30 57 5 31 25 13 22 26 8 12 6 6 Percent of Corruption Cases 58.4% 26.0% 35. involved some form of corruption.8% Transparency International.5% 43.org/content/download/39275/622457 2010 REPORT TO THE NATIONS ON OCCUPATIONAL FRAUD AND ABUSE | 37 .4% 21. certain industries are frequently thought to be more susceptible to corrupt business practices than others. Entertainment and Recreation Education Retail Telecommunications Real Estate Religious. oil and gas.6% 35. http://www.Corruption Cases by Industry Just as corruption is often observed to be particularly prominent in specific regions. 2008).13 These three industries had three of the four highest rates of corruption cases in our study.6% 21.4% 31. Fishing and Hunting Utilities Transportation and Warehousing Banking/Financial Services Insurance Government and Public Administration Communications/Publishing Healthcare Services (other) Arts.5% 33.0% 32.1% 38. 2008 Bribe Payers Index (Berlin: Transparency International.6% 45.transparency.5% 24.9% 37. the mining.3% 54. and construction industries all appear in the top five sectors for both bribery and state capture (two types of corrupt practices) in Transparency International’s 2008 Bribe Payers Index.0% 28.

Additionally. More than three-quarters of the victim organizations in our study had their financial statements audited by external auditors. less than half of the victim organizations in our study had a hotline in place at the time the fraud occurred.Victim Organizations Anti-Fraud Controls at Victim Organizations We asked survey participants which of several common anti-fraud controls were in place at the victim organization during the perpetration of the fraud. Frequency of Anti-Fraud Controls14 External Audit of F/S Code of Conduct Internal Audit/FE Department External Audit of ICOFR 59. As mentioned in our discussion on fraud detection methods (see page 16). The following analysis covers the mere presence of each control — not necessarily its role in detecting the fraud once it started.2% 48.4% 66.9% 53. and almost 60% had independent audits of their internal controls over financial reporting.4% 76.8% 41. while two-thirds had dedicated internal audit or fraud examination departments.9% Anti-Fraud Control15 Management Certification of F/S Management Review Independent Audit Committee Hotline Employee Support Programs Fraud Training for Managers/Executives Fraud Training for Employees Anti-Fraud Policy Surprise Audits Job Rotation/Mandatory Vacation Rewards for Whistleblowers 0% 10% 20% 30% 40% 50% 60% 70% 80% Percent of Cases 14 The sum of percentages in this chart exceeds 100% because many victim organizations had more than one anti-fraud control in place at the time of the fraud. nearly 70% of the organizations had a formal code of conduct in place at the time of the fraud.3% 53. though only 39% extended that to include a formal anti-fraud policy.6% 39. There is evidence that the presence of a hotline improves organizations’ ability to detect fraud and limit fraud losses (see page 43).6% 7.3% 58. which should cause more organizations to implement fraud hotlines.9% 14.6% 44.1% 69.0% 28. tips are the number one means by which fraud is detected. However. KEY: External Audit of F/S = Independent external audits of the organization’s financial statements Internal Audit / FE Department = Internal audit department or fraud examination department External Audit of ICOFR = Independent audits of the organization’s internal controls over financial reporting Management Certification of F/S = Management certification of the organization’s financial statements 15 38 | 2010 REPORT TO THE NATIONS ON OCCUPATIONAL FRAUD AND ABUSE .5% 39. A distinction should be made between the following data and the prior discussion on fraud detection methods.

8% 88. but serve as an effective way to make a clear and explicit statement against fraudulent and unethical conduct within an organization. Perhaps most concerning is that only 15% of small businesses had a hotline in place. less than half as many small businesses had the same type of monitoring in place.0% 83.1% 50. enacting hotlines would go a long way in helping small-business owners protect their assets from dishonest employees.8% 9. as discussed on page 43.2% 71.9% 51. the median loss for frauds at companies with hotlines was 59% smaller than the median loss for frauds at organizations without such a mechanism.6% 28.5% 29. a factor that may contribute to the disproportionate impact of fraud on these companies.2% 73. While 64% of large companies had some sort of management review of controls.6% 51.0% 64.4% 41.6% 15. it would be expected that small businesses would have a lower rate of external audits and that fewer small companies would have a formal internal audit or fraud examination function.2% 67.8% 82.7% 63.3% 2. formal codes of conduct and anti-fraud policies cost very little to implement.4% 6. Arguably. While discrepancies in levels of certain controls are somewhat expected given the associated costs or resources required to enact them. the gap between controls in small businesses as opposed to larger organizations is striking. For example.1% 18.7% 18. processes. But even less expensive controls were often absent in small businesses.Anti-Fraud Controls at Small Businesses We have long hypothesized that many small companies are particularly susceptible to fraud at least partially due to the limited resources they devote to anti-fraud controls.5% 15. Frequency of Anti-Fraud Controls by Size of Victim Organization External Audit of F/S Code of Conduct Management Certification of F/S Management Review Internal Audit/FE Department 32.8% 15.2% <100 Employees 100+ Employees Anti-Fraud Control External Audit of ICOFR Independent Audit Committee Employee Support Programs Fraud Training for Managers/Executives Anti-Fraud Policy Hotline Fraud Training for Employees Surprise Audits Job Rotation/Mandatory Vacation Rewards for Whistleblowers 0% 20% 40% 60% 80% 100% Percent of Cases 2010 REPORT TO THE NATIONS ON OCCUPATIONAL FRAUD AND ABUSE | 39 . To test this theory. Likewise.6% 30. Further. Our findings confirm what we suspected: The small companies in our study did indeed have fewer controls in place than the larger organizations.3% 36. Yet only 41% and 16% of small businesses had these policies (respectively) in place when the fraud occurred — numbers dwarfed by the 83% and 50% rates of larger organizations.1% 13. our research shows that hotlines are consistently the most effective fraud detection method. compared to 64% of larger organizations.5% 22. we compared the presence of anti-fraud controls at those companies with fewer than 100 employees to the controls at companies with more than 100 employees.4% 11. As previously discussed.4% 57. accounts or transactions.4% 53.

Victim Organizations Anti-Fraud Controls by Region To examine how organizations in different regions approached the fight against fraud. the United States had the lowest rate of presence for several of these controls.4% 73.1% 86. Similarly.9% 61.5% 68.9% 50. External Audit of Financial Statements Region Central/South America and the Caribbean Europe Africa Asia Canada Oceania United States Code of Conduct Region Africa Central/South America and the Caribbean Europe Canada Oceania Asia United States Percent of Cases 87. Specifically.7% 72. as well as of hotlines. and management review.2% 57.0% 85.2% 72. the proportion of victim organizations utilizing the control was markedly greater in regions containing developing countries than in those regions primarily made up of developed nations. For example.8% 76. It is interesting to note the variations in use of controls by region. 40 | 2010 REPORT TO THE NATIONS ON OCCUPATIONAL FRAUD AND ABUSE . management certification of financial statements.0% Percent of Cases 65.0% 70.7% 64. On the opposite end of the spectrum. we analyzed the presence of controls in victim organizations based on where they were located.8% 75. internal audit or fraud examination departments. for some anti-fraud controls.4% 64. codes of conduct.4% Percent of Cases 80. surprise audits and job rotation or mandatory vacation policies were most often implemented by Asian organizations.5% 68.9% 80.3% 73.7% 83. anti-fraud policies and rewards for whistleblowers were all most common among the African organizations in our study.5% 16 External Audit of ICOFR = Independent audits of the organization’s internal controls over financial reporting. The following tables illustrate the percentage of organizations within each region that had the corresponding control in place at the time of the fraud. independent audit committees.3% 58.7% 52.0% Internal Audit/Fraud Examination Department Region Africa Europe Asia Central/South America and the Caribbean Canada United States Oceania External Audit of ICOFR16 Region Central/South America and the Caribbean Asia Africa United States Canada Europe Oceania Percent of Cases 84.9% 73.6% 60.6% 56. the organizations in Central/South America and the Caribbean had the highest rate of external audits of both financial statements and internal controls over financial reporting.4% 74.

3% 25.6% 50.6% 37.3% 41.7% 39.0% Fraud Training for Employees Region United States Africa Europe Asia Central/South America and Caribbean Canada Oceania Anti-Fraud Policy Region Africa United States Central/South America and Caribbean Canada Asia Europe Oceania Percent of Cases 42.5% 41.6% 37.8% 62.1% 40.0% 38.8% Employee Support Programs Region Canada United States Oceania Africa Central/South America and Caribbean Europe Asia Fraud Training for Managers/Executives Region United States Africa Asia Europe Central/South America and Caribbean Canada Oceania Percent of Cases 57.1% 38.9% 43.1% 30.6% 57.4% 36.9% 29.0% 22.3% 32.6% 54.1% 50.2% 32.5% 52.7% 52.3% 22.0% Percent of Cases 63.3% 54.0% 51.4% Hotline Independent Audit Committee Region Africa Canada Oceania Asia Central/South America and Caribbean Europe United States Region Central/South America and Caribbean United States Africa Europe Asia Canada Oceania Percent of Cases 52.5% Percent of Cases 49.7% 54.Management Certification of Financial Statements Region Africa Canada Oceania Asia Europe United States Central/South America and Caribbean Management Review Region Asia Europe Canada Africa Oceania United States Central/South America and Caribbean Percent of Cases 59.6% 38.5% Percent of Cases 44.0% 62.0% 28.4% 25.0% Percent of Cases 68.7% 65.0% 47.9% 37.9% 52.7% 38.4% 30.3% 37.3% 45.4% 54.6% 36.4% 56.8% 65.8% 45.5% 54.8% 53.5% 51.4% 59.5% 2010 REPORT TO THE NATIONS ON OCCUPATIONAL FRAUD AND ABUSE | 41 .

4% 28.0% 3. Employee support programs.4% 5.0% Region Asia Africa Europe Canada United States Central/South America and Caribbean Oceania Percent of Cases 21.0% Rewards for Whistleblowers Region Africa Asia United States Central/South America and Caribbean Canada Europe Oceania Percent of Cases 9.5% 14.1% 12. Hotlines were the control with the greatest associated reduction in median loss.3% 30. financial statement audits — the most commonly implemented control — was among the controls with the smallest associated reduction in median loss.3% 27.4% 5.4% 7. reinforcing their value as an effective anti-fraud measure.3% 15.7% 4. Interestingly.5% Effectiveness of Controls We compared the median loss experienced by those organizations that had a particular anti-fraud control against the median loss for those organizations without that control at the time of the fraud.8% 2.6% 11.8% 9. surprise audits and fraud training for staff members at all levels were also associated with median loss reductions of more than 50%.2% 24. 42 | 2010 REPORT TO THE NATIONS ON OCCUPATIONAL FRAUD AND ABUSE .8% 20.0% 13.8% 24.Victim Organizations Surprise Audits Region Asia Africa Canada United States Europe Central/South America and Caribbean Oceania Job Rotation/Mandatory Vacation Percent of Cases 39.

As reflected in the table below.000 $200.000 $215.9% 48.8% 33.6% 41.0% 23.3% 66.5% 14. the presence of each control correlated with a reduction in the duration of fraud.0% 53.0% 34.8% 25.3% 33.9% 30.5% 50.3% 33.6% 41.000 $262.000 $145.8% 27.000 $119.0% 40.0% 50.000 $140.5% 37.6% 40.9% 39.000 $200.3% 69.0% 41.000 $155.0% 46.000 $200. Duration Based on Presence of Anti-Fraud Controls Control 17 Percent of Cases Implemented 53.5% 53.000 $209.3% 27.000 $150.000 $188.000 $200.2% 58.5% 36.9% 28.0% 16.8% 35.1% 7.0% 25.000 $140.9% 7.4% Control in Place $100.0% 34.Median Loss Based on Presence of Anti-Fraud Controls Control17 Hotline Employee Support Programs Surprise Audits Fraud Training for Employees Fraud Training for Managers/Execs Job Rotation/Mandatory Vacation Code of Conduct Anti-Fraud Policy Management Review External Audit of ICOFR Internal Audit/FE Department Independent Audit Committee Management Certification of F/S External Audit of F/S Rewards for Whistleblowers Percent of Cases Implemented 48.3% 66.1% 39.8% 46.2% Similarly.000 $244.000 $200.2% 59. We found it interesting that the controls associated with the greatest reduction in scheme lengths are not the same as the ones that had the most impact on median loss.000 $100.000 $200.8% 28.6% 44.6% 76.4% 59.2% 44.000 $120.7% Management Review Internal Audit/FE Department External Audit of ICOFR Code of Conduct Surprise Audits Hotline Management Certification of F/S Rewards for Whistleblowers Job Rotation/Mandatory Vacation External Audit of F/S Anti-Fraud Policy Fraud Training for Employees Fraud Training for Managers/Execs Independent Audit Committee Employee Support Programs 17 KEY: External Audit of F/S = Independent external audits of the organization’s financial statements Internal Audit / FE Department = Internal audit department or fraud examination department External Audit of ICOFR = Independent audits of the organization’s internal controls over financial reporting Management Certification of F/S = Management certification of the organization’s financial statements 2010 REPORT TO THE NATIONS ON OCCUPATIONAL FRAUD AND ABUSE | 43 .000 $200.0% 39.0% 25.000 $100.000 $100.000 $150.000 Percent Reduction 59.9% 39.000 $200.8% Control in Place 12 months 14 months 15 months 15 months 12 months 13 months 15 months 12 months 12 months 16 months 13 months 13 months 13 months 15 months 15 months Control Not in Place 24 months 24 months 24 months 24 months 19 months 20 months 23 months 18 months 18 months 24 months 18 months 18 months 18 months 20 months 18 months Percent Reduction 50.000 $140.000 $97. we compared the duration of fraud schemes at organizations with and without anti-fraud controls.6% 69.4% 14.6% 58.000 $120.000 Control Not in Place $245.7% 37.8% 27.3% 59.6% 30.4% 53.9% 76.0% 51.000 $100.

4% 60.3% 50.3% 36. We asked the CFEs who took part in our survey to rank the importance of several anti-fraud controls in detecting or limiting the fraud.3% 38. Likewise.8% Very Important Somewhat Important Not at all Important Control18 Job Rotation/ Mandatory Vacation Hotline Rewards for Whistleblowers External Audit of ICOFR External Audit of F/S 0% 10% 20% 30% 40% 50% 60% 70% 80% Percent of Respondents 18 KEY: External Audit of F/S = Independent external audits of the organization’s financial statements Internal Audit / FE Department = Internal audit department or fraud examination department External Audit of ICOFR = Independent audits of the organization’s internal controls over financial reporting Management Certification of F/S = Management certification of the organization’s financial statements 44 | 2010 REPORT TO THE NATIONS ON OCCUPATIONAL FRAUD AND ABUSE .0% 32.4% 31. The following chart shows the respondents’ opinions regarding each control’s usefulness.Victim Organizations Importance of Controls in Detecting or Limiting Fraud Not all controls are effective against all frauds. Importance of Control in Detecting or Limiting Fraud Internal Audit/ FE Department Management Review Surprise Audits 17. and some controls are more susceptible to being overridden than others.4% 29.3% 21.3% 49.9% 19.3% 31. Most control mechanisms are more likely to detect or deter some fraud schemes than others. some perpetrators are more adept than others at circumventing particular controls.7% 23.5% 27.5% 25.2% 19.0% 41.0% 42.9% 23.5% 24.0% 40.2% 25. We thought it useful to examine which controls had the greatest effect on the frauds reported in our study.7% 45.4% 25.

Control Weaknesses That Contributed to Fraud We also asked survey respondents to identify which of several common issues they considered to be the primary factor that allowed the fraud to occur. even though hotlines are consistently the most effective detective control mechanism. Clearly. we compared internal control weaknesses at organizations with fewer than 100 employees to those at larger organizations. internal controls were in place but were overridden by the perpetrator or perpetrators in order to commit and conceal the fraud. most likely because the lack of controls in so many small organizations meant there was nothing to override. the small organizations had a noted deficiency in internal controls that allowed fraud to occur.4% Lack of Management Review 17.9% Lack of Clear Lines of Authority 1.2% To further examine the unique challenges faced by small businesses. Primary Internal Control Weakness Observed by CFEs Lack of Independent Checks/Audits 5. This weakness was cited nearly three times as often in million-dollar cases as in cases with smaller losses. a lack of reporting mechanism was the control deficiency least commonly cited by the CFEs who participated in our study. one deficiency is much more common in the million-dollar frauds than in smaller frauds: a poor tone at the top. Interestingly. A lack of internal controls.9% Poor Tone at the Top 8.8% Lack of Competent Personnel in Oversight Roles 6.6% Lack of Internal Controls 37. a lack of internal controls was cited as the factor that most contributed to the occurrence of the fraud. and even though less than half of the victim organizations had a hotline in place at the time of the fraud. We were also interested to see what factors led to the success of the largest frauds in our study — those causing losses of more than $1 million.8% Override of Existing Internal Controls 19. In more than 19% of the cases. such as segregation of duties.6% Lack of Employee Fraud Education 1. In nearly half of the cases at small companies. 2010 REPORT TO THE NATIONS ON OCCUPATIONAL FRAUD AND ABUSE | 45 . As shown in the chart at the top of page 46. was cited as the biggest deficiency in 38% of the cases. Control overrides were markedly less common at small companies than at their larger counterparts.9% Lack of Reporting Mechanism 0.

3% 0.0% 6.5% 7.2% 0.6% 2.3% 0.7% 16.8% 12.0% 1.7% 17.5% 5.7% 19.0% 7.2% 2.0% 19.8% 6.0% 5.2% 5.0% 0.7% $1 Million+ Cases <$1 Million Cases Most Important Contributing Factor Override of Existing Internal Controls Lack of Management Review Poor Tone at the Top Lack of Competent Personnel in Oversight Roles Lack of Independent Checks/Audits Lack of Employee Fraud Education Lack of Clear Lines of Authority Lack of Reporting Mechanism 0% 10% 20% 30% 40% 50% Percent of Cases 46 | 2010 REPORT TO THE NATIONS ON OCCUPATIONAL FRAUD AND ABUSE .7% 2.8% 7.5% 17.8% 1.9% 22.5% 0.Victim Organizations Primary Internal Control Weakness by Size of Victim Organization Lack of Internal Controls 33.1% 16.0% 0.8% 8.0% <100 Employees 100+ Employees Most Important Contributing Factor Lack of Management Review Override of Existing Internal Controls Poor Tone at the Top Lack of Independent Checks/Audits Lack of Competent Personnel in Oversight Roles Lack of Clear Lines of Authority Lack of Employee Fraud Education Lack of Reporting Mechanism 0% 10% 20% 30% 40% 50% Percent of Cases Primary Internal Control Weakness in Largest Cases Lack of Internal Controls 32.2% 5.8% 18.7% 7.3% 47.3% 39.7% 2.

Modification of Controls
In response to the discovery of the fraud, more than 80% of the victim organizations in our study implemented or modified internal controls. While this percentage is quite high, it indicates that nearly one out of five victims retained the same control system — or lack thereof — that was ineffective in preventing the reported fraud schemes. Of those organizations that did implement or modify their internal controls in response to the fraud, more than 60% increased segregation of duties, more than half added formal review of internal controls by management and 23% implemented surprise audits.

Victim Organizations That Modified Controls After Discovery of Fraud
Did Not Modify Controls 19.4%

Did Modify Controls 80.6%

Internal Controls Modified or Implemented in Response to Fraud19
Increased Segregation of Duties Management Review Surprise Audits
22.5% 16.4% 14.8% 13.5% 12.3% 11.7% 8.7% 8.7% 7.9% 7.8% 6.0% 5.9% 4.0% 1.8% 50.6% 61.2%

Control Implemented/Modified20

Fraud Training for Employees Fraud Training for Managers/Executives Job Rotation/Mandatory Vacation Internal Audit/FE Department Anti-Fraud Policy Code of Conduct External Audit of F/S Hotline External Audit of ICOFR Indpendent Audit Committee Management Certification of F/S Rewards for Whistleblowers Employee Support Programs 0%

10%

20%

30%

40%

50%

60%

70%

80%

Percent of Cases
19

The sum of percentages in this chart exceeds 100% because many victim organizations modified more than one anti-fraud control in response to the fraud. KEY: External Audit of F/S = Independent external audits of the organization’s financial statements Internal Audit / FE Department = Internal audit department or fraud examination department External Audit of ICOFR = Independent audits of the organization’s internal controls over financial reporting Management Certification of F/S = Management certification of the organization’s financial statements

20

2010 REPORT TO THE NATIONS ON OCCUPATIONAL FRAUD AND ABUSE | 47

Perpetrators

We asked respondents to provide information about the fraud perpetrators in their cases so we could better understand how occupational fraud levels and losses are related to demographic information such as age, job type, gender, education and position of authority. In cases where there were multiple offenders, the responses relate to the principal perpetrator — the person identified by the CFE as the primary culprit in the case. The following is a summary of the data we received.

We collected information about the individuals responsible for occupational fraud in order to better understand the characteristics of those who commit fraud.

Perpetrator’s Position
We asked survey respondents whether the perpetrator was an employee, a manager or an owner/executive. Below we see that the distribution of cases based on the perpetrator’s position was fairly similar to what we found in our 2008 study, although the 2010 distribution was slightly more skewed toward employees and managers. Not surprisingly, there was a strong correlation between the perpetrator’s position of authority and the losses caused by fraud. The median loss in owner/executive frauds was more than three times the loss caused by managers, and more than nine times higher than losses in employee fraud cases.

More than 80% of the frauds in our study were committed by individuals in six departments: accounting, operations, sales, executive/upper management, customer service and purchasing.

Position of Perpetrator — Frequency
2010
42.1% 39.7%

Position of Perpetrator

Employee

2008

Manager

41.0% 37.1%

Owner/Executive

16.9% 23.3%

0%

10%

20%

30%

40%

50%

Percent of Cases
48 | 2010 REPORT TO THE NATIONS ON OCCUPATIONAL FRAUD AND ABUSE

Position of Perpetrator — Median Loss
2010
$80,000 $70,000

Position of Perpetrator

Employee

2008

Manager

$200,000 $150,000

Owner/Executive

$723,000 $834,000

$0

$200,000

$400,000

$600,000

$800,000

$1,000,000

Median Loss

As the following table illustrates, frauds committed by higher-level perpetrators also took longer to detect. Cases perpetrated by owners and executives typically lasted for two years before they were detected — nearly twice as long as employee frauds.

Months to Detection Based on Position
Position Median Months to Detect

Employee Manager Owner/Executive

13 18 24

Position of Perpetrators by Region
The charts on pages 50-52 present the distribution of perpetrators by level of authority for each region. In every region, owners/executives accounted for between 12% and 18% of reported frauds, and the losses caused by owners/executives were significantly higher than those caused by managers or employees. In the United States and Canada, employees were the largest block of fraud perpetrators (46% in each country). In Europe, Asia and Central/South America, however, managers accounted for 50% or more of the reported occupational frauds. In Africa and Oceania, the number of frauds committed by managers and employees were roughly equal.

2010 REPORT TO THE NATIONS ON OCCUPATIONAL FRAUD AND ABUSE | 49

Perpetrators

Position of Perpetrator in the United States — 968 Cases
Position of Perpetrator (percent of cases)
Employee (46.2%)
$50,000

Manager (36.7%)

$150,000

Owner/Executive (17.1%) $0 $100,000 $200,000 $300,000

$485,000

$400,000

$500,000

Median Loss

Position of Perpetrator in Asia — 259 Cases
Position of Perpetrator (percent of cases)
Employee (32.8%)
$143,000

Manager (50.6%)

$220,000

Owner/Executive (16.6%) $0 $200,000 $400,000 $600,000

$1,000,000

$800,000

$1,000,000

Median Loss

Position of Perpetrator in Europe — 141 Cases
Position of Perpetrator (percent of cases)
Employee (31.9%)
$340,000

Manager (50.4%)

$350,000

Owner/Executive (17.7%) $0 $500,000 $1,000,000

$2,000,000

$1,500,000

$2,000,000

Median Loss

50 | 2010 REPORT TO THE NATIONS ON OCCUPATIONAL FRAUD AND ABUSE

000 $300.000 Manager (36.000.000 $1.4%) $150.0%) $0 $100.000 $1.000 Owner/Executive (12.000 $400.Position of Perpetrator in Africa — 108 Cases Position of Perpetrator (percent of cases) Employee (44.0%) $0 $200.000 $400.000 $200.000 $1.000 Owner/Executive (18.000 $800.000 Median Loss Position of Perpetrator in Central/South America and the Caribbean — 64 Cases Position of Perpetrator (percent of cases) Employee (32.000 Owner/Executive (17.000 $600.000.8%) $31.200.0%) $250.500.5%) $270.000 $1.000 Median Loss Position of Perpetrator in Canada — 89 Cases Position of Perpetrator (percent of cases) Employee (46.000 Manager (50.000 $325.000 Median Loss 2010 REPORT TO THE NATIONS ON OCCUPATIONAL FRAUD AND ABUSE | 51 .000 Manager (43.000.1%) $63.2%) $0 $500.0%) $250.000 $1.

which is a higher percentage than we encountered in 2008.0%) $338. but consistent with the overall trend noted in prior reports that most occupational frauds are committed by men.000 $600.000 Median Loss Perpetrator’s Gender Two-thirds of the frauds in our study were committed by males.000 Manager (45.7% 59.000 $750.000 $400.3% 40.000 Owner/Executive (15.9% 0% 10% 20% 30% 40% 50% 60% 70% 80% Percent of Cases 52 | 2010 REPORT TO THE NATIONS ON OCCUPATIONAL FRAUD AND ABUSE .000 $800.1% 2008 Female 33.Perpetrators Position of Perpetrator in Oceania — 40 Cases Position of Perpetrator (percent of cases) Employee (40.0%) $300.0%) $0 $200. Gender of Perpetrator — Frequency Gender of Perpetrator 2010 Male 66.

9% 80.1% 41.9% 57.3% 82.9% 19.8% Male Female Europe Central/South America and the Caribbean Region Africa Oceania Canada United States 0% 20% 40% 60% 80% 100% Percent of Cases Males accounted for significantly higher median fraud losses than females.000 2008 Female $100.000 $150.7% 13. The median loss caused by a male perpetrator was more than twice as high as the median loss caused by a female.000 $200.5% 32. Asia had the highest ratio of male perpetrators (87%).1% 17.000 $100. while the United States had the lowest (57%). Gender of Perpetrator Based on Region Asia 86.000 Median Loss 2010 REPORT TO THE NATIONS ON OCCUPATIONAL FRAUD AND ABUSE | 53 . Gender of Perpetrator — Median Loss Gender of Perpetrator 2010 Male $232.2% 42.The following chart shows the gender of perpetrators based on the region in which frauds occurred.3% 67. which is also consistent with our previous studies.000 $250.000 $110.5% 58.000 $250.7% 24.000 $0 $50.1% 75.

The gap was particularly large in Europe and Oceania.000 $167. at the manager level.000 $400.000 Male Female Europe Central/South America and the Caribbean Region Africa Oceania Canada United States $0 $100. At the employee level. There were an equal number of male and female fraudsters at the employee level. losses caused by males were 36% higher than those caused by females.000 $200. they were 325% higher. the higher losses caused by males are attributable to the fact that they tended to occupy higher positions of authority within the victim organizations.000 $300.000 $500.000 $125. male fraud losses tended to be higher.000 $145. and at the owner/executive level. which may impact the reliability of that data.000 $600. we see that fraud losses caused by male perpetrators were higher than females in every region.000 $238.000 $82. Surprisingly.000 $680. 54 | 2010 REPORT TO THE NATIONS ON OCCUPATIONAL FRAUD AND ABUSE . but the manager and owner/executive levels — which tend to cause higher losses — were dominated by males.000 Median Loss To some extent. even when we compared median losses within each position group.000 $200.000 $500. which may impact the reliability of the findings from that region.22 21 22 There was a small sample of only 40 cases in Oceania.21 Median Loss Based on Gender and Region of Perpetrator Asia $300.000 $124. Seventy-four percent of all managers and 88% of all owners/executives in the study were male. There was a small sample of only 35 frauds committed by female owners and executives.000 $700.Perpetrators When broken down by region.000 $800.000 $160. they were 67% higher. though.000 $182.000 $230.000 $200.

000 Owner/Executive $850.000 $0 $200. Position of Perpetrator Based on Gender Male 356 356 Position of Perpetrator Employee Female Manager 514 184 Owner/Executive 247 35 0 100 200 300 400 500 600 Number of Cases Position of Perpetrator — Median Loss Based on Gender Male $95.000 $600.000 $200. there tend to be bands of authority — meaning some managers or executives have more authority than others.It is unclear exactly why this trend appears in our data.000.000 $400.000 Position of Perpetrator Employee Female Manager $250.000 Median Loss 2010 REPORT TO THE NATIONS ON OCCUPATIONAL FRAUD AND ABUSE | 55 .000 $70.000 $800. but one possible explanation is that even within each position group. We could be seeing the effect of higher male authority within each position.000 $1.000 $150.

1% 6.2% 17. The most notable difference between 2008 and 2010 is the losses caused by perpetrators older than 60.2% 4.6% 8. median losses tended to rise with the age of the perpetrator.8% 12. Given the small sample size. but the 2010 perpetrators tended to be slightly younger.1% 16.9% 10% 9. we were dealing with fewer than 40 cases in that category.Perpetrators Perpetrator’s Age The distribution of perpetrators based on their age was similar to our 2008 study. Generally speaking.7% Percent of Cases 12. we believe this is more likely to be an anomaly than an indication of any particular trend.9% 2.0% 9. In each study.3% 19. which is consistent with our prior research. however.3% 18.4% 5% 5.1% 16.6% 5. Age of Perpetrator — Frequency 20% 19.2% 0% <26 26 – 30 31 – 35 36 – 40 41 – 45 46 – 50 51 – 55 56 – 60 >60 Age of Perpetrator 56 | 2010 REPORT TO THE NATIONS ON OCCUPATIONAL FRAUD AND ABUSE .2% 3. Our past reports have generally shown the highest levels of fraud to occur in the 36–50 age range.5% 2010 2008 15% 13. but this year we found more than half of all cases were committed by individuals between the ages of 31 and 45.

000 51 – 55 $321.000 56 – 60 $428. 2010 REPORT TO THE NATIONS ON OCCUPATIONAL FRAUD AND ABUSE | 57 $435.000 $60.000.000 Median Loss $600.000 . They also may acquire higher levels of authority. Those who had been with the victim for five years or less caused much lower losses.000 $400.000 $15.000 $344. and they tend to develop a better understanding of the organization’s internal practices and procedures.000 $127.000 $25.000 2010 2008 $800.000 $50.000 >60 Age of Perpetrator Perpetrator’s Tenure Tenure may have an effect on occupational fraud rates and losses because individuals who work for an organization for a longer period of time tend to engender more trust from their co-workers and superiors. About half of all fraudsters had been with the victim for more than five years (see page 58).000 $636.000.000 $974. while a very small percentage had been with the victim organization for less than a year.000 $120. losses tended to rise as the perpetrators’ tenure increased.000 $360.000 $145. More than 40% of perpetrators had between one and five years of experience at the victim organization when they committed the fraud. which can help them design frauds that will evade internal controls.000 $200. The distribution of fraudsters based on their tenure in this study was very similar to what we found in 2008.000 $270. As would be expected.000 $113.Age of Perpetrator — Median Loss $1.000 $0 <26 26 – 30 31 – 35 36 – 40 41 – 45 $200.000 46 – 50 $265. Employees who had more than five years of tenure with the victim organization caused median losses of more than $200.

000 $250.000 $50.000 $142.000 $150.000 $231.000 $0 Less than 1 year 1 – 5 years 6 – 10 years More than 10 years Tenure of Perpetrator 58 | 2010 REPORT TO THE NATIONS ON OCCUPATIONAL FRAUD AND ABUSE .7% 7.4% 0% Less than 1 year 1 – 5 years 6 – 10 years More than 10 years Tenure of Perpetrator Tenure of Perpetrator — Median Loss $300.000 $47.000 $100.000 $114.2% 27.6% 23.5% 25.000 $261.000 $289.4% 20% 10% 5.Perpetrators Tenure of Perpetrator — Frequency 50% 45.000 $50.5% 2010 2008 40% Percent of Cases 30% 24.7% 40.000 Median Loss $200.000 2010 2008 $250.

which was up slightly from our 2008 findings.1% 20.000 Some College $136.9% 2010 2008 38. Education of Perpetrator — Frequency Education Level of Perpetrator Postgraduate Degree 14.000 $400.0% 34.8% High School Graduate 0% 5% 10% 15% 20% 28. median losses rose in correlation with increased education levels. but losses caused by individuals with a postgraduate degree were much lower in 2010 than in our 2008 study. because more highly educated individuals tend to have greater levels of responsibility and perhaps greater technical ability to design sophisticated fraud schemes.000 $200.4% College Degree Some College 17.000 2010 2008 College Degree $234.000 $196. As would be expected. The following chart shows the distribution of perpetrators in this study based on their education level.000 $210.000 $600.000 Median Loss 2010 REPORT TO THE NATIONS ON OCCUPATIONAL FRAUD AND ABUSE | 59 .Perpetrator’s Education Level Education level may also affect fraud rates and losses. Fifty-two percent of all perpetrators had a college or postgraduate degree.000 $100.000 $300.000 $550.8% 33.000 $500.0% 10.000 High School Graduate $0 $100.9% 25% 30% 35% 40% Percent of Cases Education of Perpetrator — Median Loss Education Level of Perpetrator Postgraduate Degree $300.000 $100.

000 $450. Number of Cases Based on Perpetrator’s Department Department Accounting Operations Sales Executive/Upper Management Customer Service Purchasing Warehousing/Inventory Finance Information Technology Marketing/Public Relations Manufacturing and Production Board of Directors Human Resources Research and Development Legal Internal Audit Median Loss Based on Perpetrator’s Department Department Executive/Upper Management Board of Directors Legal Purchasing Finance Marketing/Public Relations Warehousing/Inventory Human Resources Accounting Manufacturing and Production Operations Research and Development Sales Information Technology Customer Service Internal Audit Number of Cases 367 299 225 224 120 103 78 70 47 34 28 24 22 13 8 3 Percentage 22.000 $566. 80% of all frauds in this study were committed by employees in six departments: accounting.2% Median Loss $829. operations.3% 0. Additionally.000 $800. the frauds in these six departments also accounted for 95% of all losses in our 2010 study.2% 4.3% 22. Interestingly.0% 13.7% 1.000 $46.000 $248.000 $200. executive/upper management.000) departments tended to result in much lower losses.000 60 | 2010 REPORT TO THE NATIONS ON OCCUPATIONAL FRAUD AND ABUSE .000) and customer service ($46.4% 0.000) and purchasing ($500.000 $200. Among the six highest-frequency departments we see that upper management ($829.0% 1. Frauds committed in the sales ($95.0% 1. these six departments accounted for 83% of all cases.2% 2.000 $829.000 $450.0% 4.000 $71.5% 13.000 $105.000 $13.2% 2.7% 4.000 $800. The table below right presents the same data on frauds by department.000 $239.000 $95.5% 1.8% 13.4% 1.000 $71.000 $150. sales.5% 7.000 Number of Cases 224 24 8 103 70 34 78 22 367 28 299 13 225 47 120 3 Percentage 13.400 $46.000) caused the highest median losses.000 $566.2% 6.000 $150.2% 0. In our 2008 study.000 $13.000 $239.5% 2.400 $248.7% 1.000 $180. and 99% in 2008.000 $500.0% 0.7% 18.5% 6. customer service and purchasing.8% 7.5% 0.000 $500.000 $100.8% 0. but is sorted based on median losses.0% 18.2% Median Loss $180.Perpetrators Perpetrator’s Department The table below left shows how frauds were distributed across various departments within the victim organizations.000 $105.000 $100.000 $95.8% 2.2% 4.

4% 10.9% 7.0% 1.7% 0.1% 2.7% 2010 REPORT TO THE NATIONS ON OCCUPATIONAL FRAUD AND ABUSE | 61 Number of Cases 26 23 21 13 13 11 8 8 6 6 5 4 1 1 Department Accounting Operations Finance Customer Service Executive/Upper Management Purchasing Warehousing/Inventory Human Resources Sales Information Technology Manufacturing and Production Board of Directors Legal Marketing/Public Relations Number of Cases 31 13 11 9 9 7 6 5 5 3 3 1 1 1 Percent of Cases 29.7% 0.5% 8.2% 0. accounting departments were associated with the greatest number of frauds.7% 0.1% 3. sales.1% 8.3% 2.7% 0.7% 4.9% 2.9% 1.9% 2.7% 13.1% 14.Perpetrator’s Department Based on Region The following tables show the distribution of perpetrators based on their department for each region. United States — 913 Cases Department Accounting Operations Executive/Upper Management Sales Customer Service Purchasing Warehousing/Inventory Finance Information Technology Manufacturing and Production Marketing/Public Relations Legal Board of Directors Human Resources Research and Development Internal Audit Asia — 272 Cases Percent of Cases 24.1% 4.0% 1.7% 0.0% 4.8% 2.5% 12.4% 0.3% 20.9% 2.6% 8.2% 1.0% 15.9% 3.2% 2.5% 5. executive/upper management. operations.0% 3.4% 8.9% 13.2% 1.5% 0.8% 0. the distribution of cases was very similar regardless of region.8% 14.7% 4.4% 15.2% Number of Cases 222 189 127 120 77 39 36 28 26 11 11 7 6 6 6 2 Department Sales Operations Accounting Executive/Upper Management Purchasing Finance Warehousing/Inventory Customer Service Board of Directors Marketing/Public Relations Human Resources Manufacturing and Production Information Technology Internal Audit Research and Development Number of Cases 57 42 41 38 29 11 11 9 8 8 6 6 4 1 1 Percent of Cases 21.0% .5% 4. The six highest-frequency departments (accounting.8% 1.5% 5. In every region but Asia.4% 2.4% Europe — 146 Cases Department Accounting Executive/Upper Management Operations Purchasing Sales Finance Customer Service Warehousing/Inventory Board of Directors Information Technology Marketing/Public Relations Research and Development Human Resources Manufacturing and Production Africa — 105 Cases Percent of Cases 17.4% 4.9% 8.3% 3.7% 5. Overall.0% 10.8% 4.8% 15. customer service and purchasing) accounted for between 70% and 85% of the cases in every region.6% 6.

5% 10.9% 4.5% 2.5% 1.2% 13.6% 62 | 2010 REPORT TO THE NATIONS ON OCCUPATIONAL FRAUD AND ABUSE .2% 10.6% 2.1% 10.1% Central/South America and the Caribbean — 66 Cases Department Accounting Executive/Upper Management Sales Purchasing Customer Service Operations Finance Marketing/Public Relations Manufacturing and Production Warehousing/Inventory Board of Directors Human Resources Number of Cases 10 9 8 7 6 6 5 5 4 3 1 1 1 Percent of Cases 15.3% 5.2% 2.6% 9.6% 13.1% 9.1% 10.2% 2.5% 1.6% 12.5% 7.Perpetrators Canada — 89 Cases Department Accounting Operations Executive/Upper Management Customer Service Sales Warehousing/Inventory Information Technology Finance Human Resources Purchasing Board of Directors Marketing/Public Relations Number of Cases 22 18 12 9 9 7 4 2 2 2 1 1 Percent of Cases 24.2% 1.1% 4.3% 5.5% 1.9% 5.1% 7.6% 2.2% 13.2% 13.1% 7.1% 1.7% 20.6% 7.3% 2.5% Oceania — 38 Cases Department Accounting Operations Sales Warehousing/Inventory Executive/Upper Management Information Technology Purchasing Research and Development Customer Service Finance Marketing/Public Relations Information Technology Number of Cases 12 5 5 4 3 2 2 2 1 1 1 Percent of Cases 31.6% 6.

8% 2.5% 33. Accounting Department The most common schemes committed by fraudsters in the accounting department were check tampering and billing fraud.1% 12.7% 4. As noted earlier.0% 11.4% 26. those six departments accounted for 80% of all cases.8% 8.5% 9. but less likely to engage in corruption or steal non-cash assets.0% 14.0% 13. 2010 REPORT TO THE NATIONS ON OCCUPATIONAL FRAUD AND ABUSE | 63 . each of which occurred in over 30% of cases.5% 5% 10% 15% 20% 25% 30% 35% Percent of Cases 23 The sum of percentages in this chart exceeds 100% because several cases involved schemes from more than one category. operations. When compared to the overall distribution.8% Scheme Type Payroll Cash on Hand Expense Reimbursement Corruption Non-Cash Financial Statement Fraud Register Disbursements 0% 5. This distribution was similar to what we encountered in 2008.8% Accounting All Cases 16.2% 3.1% 32. sales.4% 15. customer service and purchasing.1% 4.4% 10. executive/upper management.Schemes Based on Perpetrator’s Department We broke down the distribution of fraud schemes based on the perpetrator’s department to see how methods of fraud varied depending on where the perpetrator worked within an organization. we see that accounting personnel are much more likely than other employees to commit check tampering and payroll fraud.2% 30. Schemes Committed by Perpetrators in the Accounting Department — 367 Cases23 Check Tampering Billing Skimming Cash Larceny 18.3% 15.3% 13. We limited our inquiry to the six highestfrequency departments: accounting.8% 17.

8% 2.Perpetrators Primary Operations Fraudsters who worked in the primary operations of the victim organization most often engaged in corruption (31% of cases) and billing fraud (22%).4% 17.0% 13.4% 9.1% 15.7% 4.0% 11. The distribution of frauds by operations staff was consistent with the overall distribution of frauds.8% Operations All Cases Scheme Type Skimming Cash on Hand Check Tampering Payroll Cash Larceny Financial Statement Fraud Register Disbursements 0% 5% 10% 15% 20% 25% 30% 35% Percent of Cases 24 The sum of percentages in this chart exceeds 100% because several cases involved schemes from more than one category.0% 12.8% 2.7% 14.7% 15.0% 3.5% 13.8% 32.5% 14.0% 30.0% 9.1% 26. Schemes Committed by Perpetrators in the Primary Operations of the Victim Organization — 299 Cases24 Corruption Billing Expense Reimbursement Non-Cash 15.4% 8. 64 | 2010 REPORT TO THE NATIONS ON OCCUPATIONAL FRAUD AND ABUSE .0% 22.5% 9.

0% 26.0% Sales All Cases Scheme Type Billing Cash on Hand Cash Larceny Register Disbursements Check Tampering Financial Statement Fraud Payroll 0% 13. Conversely.8% 3.6% 33. check tampering or payroll fraud.0% 9. they were much less likely to engage in billing schemes.6% 15.5% 8.1% 13.Sales Department The most common frauds in the sales department were corruption (34% of cases) and theft of non-cash assets (24%).4% 14.6% 4.8% 17.0% 4. 2010 REPORT TO THE NATIONS ON OCCUPATIONAL FRAUD AND ABUSE | 65 .8% 8.0% 3.5% 16.0% 12. Fraudsters in the sales department were somewhat more likely than others to steal non-cash assets.4% 5% 10% 15% 20% 25% 30% 35% Percent of Cases 25 The sum of percentages in this chart exceeds 100% because several cases involved schemes from more than one category.3% 9.5% 15.8% 12.8% 32. Schemes Committed by Perpetrators in the Sales Department — 225 Cases25 Corruption Non-Cash Skimming Expense Reimbursement 23.8% 1.

9% 40.8% 12.5% 8.6% 9.4% 13.8% 26.8% 13. 66 | 2010 REPORT TO THE NATIONS ON OCCUPATIONAL FRAUD AND ABUSE . Billing fraud (41%) and expense reimbursement schemes (30%) were also very common. All three of these schemes occurred with much more frequency among executives than other employees.0% 15.0% 11.5% 16.6% 48. Financial statement fraud schemes were also much more common among executives and upper management.Perpetrators Executive or Upper Management When fraud occurred in the executive suite.7% Executive/ Upper Management All Cases Scheme Type Payroll Check Tampering Skimming Financial Statement Fraud Cash on Hand Cash Larceny Register Disbursements 0% 10% 20% 30% 40% 50% Percent of Cases 26 The sum of percentages in this chart exceeds 100% because several cases involved schemes from more than one category. Schemes Committed by Perpetrators in Executive/ Upper Management Positions — 224 Cases26 Corruption Billing Expense Reimbursement Non-Cash 32.0% 4.3% 13.3% 3.5% 12.8% 1.1% 18. nearly half of the cases involved corruption.0% 29.8% 12.3% 17.1% 14.

but compared to the distribution for all cases. Conversely. theft of cash on hand and fraudulent register disbursements were more likely to occur in customer service than in other areas of the organization. 2010 REPORT TO THE NATIONS ON OCCUPATIONAL FRAUD AND ABUSE | 67 .3% 1.3% 17.2% 9.5% 17.7% 19.0% 3.0% All Cases 18.2% 32.4% 3.0% 13.5% Scheme Type Cash Larceny Billing Check Tampering Register Disbursements Expense Reimbursement Financial Statement Fraud Payroll 0% 9.5% 5% 10% 15% 20% 25% 30% 35% Percent of Cases 27 The sum of percentages in this chart exceeds 100% because several cases involved schemes from more than one category.5% 12. we see that corruption was actually much less likely to occur in customer service than elsewhere.3% 8.3% 26.8% Customer Service 14.8% 15.8% 8. skimming.3% 8.Customer Service Department Corruption was the most common form of fraud among customer service employees (22% of cases). Schemes Committed by Perpetrators in the Customer Service Department — 120 Cases27 Corruption Skimming Cash on Hand Non-Cash 21.8% 0.1% 8.7% 4.

1% 5.5% 0.8% 0.0% 32.0% 42. Both of these schemes were more likely to occur in the purchasing department than in any other area of the organization.9% 9.8% Purchasing All Cases Scheme Type Skimming Cash on Hand Check Tampering Cash Larceny Payroll Financial Statement Fraud Register Disbursements 0% 10% 20% 30% 40% 50% 60% 70% 80% Percent of Cases 28 The sum of percentages in this chart exceeds 100% because several cases involved schemes from more than one category. and billing schemes also occurred at a very high rate (43%).8% 1.5% 4.7% 71.0% 4.7% 15.6% 17.4% 2. which are among the most costly forms of occupational fraud.0% 3. overbilling and bid rigging schemes.Perpetrators Purchasing Department The vast majority of frauds in the purchasing department involved corruption (72% of cases).9% 8.8% 26. which is not surprising because the purchasing function often lends itself to bribery.8% 14. 68 | 2010 REPORT TO THE NATIONS ON OCCUPATIONAL FRAUD AND ABUSE .5% 9. Schemes Committed by Perpetrators in the Purchasing Department — 103 Cases28 Corruption Billing Non-Cash Expense Reimbursement 13.9% 12.9% 13.0% 4.

the perpetrator often displays certain behaviors or characteristics that might indicate he or she has a heightened risk of committing fraud.7% 87. these behavioral red flags do not prove an individual is engaged in a fraud.5% 8. so the ability to detect frauds as early as possible can have a big effect in limiting losses.7% 0% Never Charged Prior Charged But or Convicted Convictions Not Convicted Criminal Background Perpetrator’s Employment Background 100% 82. which was virtually identical to our finding in 2008.7% 6. Perpetrator’s Criminal Background 100% 85. past employment issues may indicate that an employee is more likely to engage in fraudulent conduct in the future.4% 2010 2008 Percent of Cases Only 7% of the fraud perpetrators in our study had been 80% 60% 40% 20% 6. Among those cases. occupational frauds often last for months or years before they are caught. Perpetrator’s Employment Background In addition to criminal history.7% 5. about 8% of perpetrators had been previously punished and 10% had been previously terminated for fraud-related conduct. On their own.1% 0% Never Punished Previously or Terminated Terminated Previously Punished Employment Background 2010 REPORT TO THE NATIONS ON OCCUPATIONAL FRAUD AND ABUSE | 69 .4% 82. this can be a strong clue that something is wrong. 791 were able to provide information about the perpetrator’s prior employment history.6% 2010 2008 Behavioral Red Flags Displayed by Perpetrators While a fraud is ongoing. but the effect is probably limited. but they should raise warning signals to the individual’s co-workers and managers.Perpetrator’s Criminal and Employment History Perpetrator’s Criminal Background previously convicted of a fraud-related offense. As discussed earlier in this report. The low rate of prior convictions suggests that criminal background checks may have some effect in preventing fraud. Of the respondents in our survey.3% 9. When these red flags exist alongside other indicators of misconduct. Percent of Cases 80% 60% 40% 20% 12. as well as the organization’s anti-fraud staff.1% 5. Eighty-six percent had never been charged with or convicted of a prior offense.8% 7.

7% 15.6% 18.9% 7.1% 14.6% Complained about lack of authority 3.1% 43.5% 6. excessive control issues with regard to their jobs (23%) and an unusually close association with vendors or customers (22%). 70 | 2010 REPORT TO THE NATIONS ON OCCUPATIONAL FRAUD AND ABUSE .6% 36. this data will help organizations build better fraud-detection programs that incorporate behavioral data in addition to more standard anti-fraud controls.1% 4.9% 7.0% 2010 2008 Behavioral Red Flag Irritability.2% 6.8% 9. the most common red flags displayed by perpetrators were living beyond financial means (43% of cases). suspiciousness or defensiveness Addiction problems Refusal to take vacations Past employment-related problems Complained about inadequate pay Excessive pressure from within organization Past legal problems Instability in life circumstances Excessive family/peer pressure for success 4.3% 8.6% 11.3% 10. we hope to be able to identify consistent relationships between behavioral warning signs and the occurrence of occupational fraud.1% 13. Ideally.6% 0% 10% 20% 30% 40% 50% Percent of Cases 29 The sum of percentages in this chart exceeds 100% because in many cases perpetrators displayed more than one behavioral red flag.3% 7.Perpetrators We presented survey respondents with a list of common behavioral red flags and asked them to identify which of these warning signs had been displayed by the perpetrator prior to detection of the fraud.2% 22.6% 17.9% 5.3% 7.9% 13. This distribution is very similar to what we found in our 2008 study. Behavioral Red Flags of Perpetrators29 Living beyond means Financial difficulties Control issues. As shown in the chart below.2% 20. unwillingness to share duties Unusually close association with vendor/customer Wheeler-dealer attitude Divorce/family problems 22.3% 17.2% 38. As we continue to track this data in future studies.1% 19.7% 5.6% 4.5% 6.4% 34. experiencing financial difficulties (36%).

1% 24.8% 16.5% 9.3% 5.7% 10% 20% 30% 40% 50% Percent of Cases 30 The sum of percentages in this chart exceeds 100% because in many cases perpetrators displayed more than one behavioral red flag.8% 7.7% 21.9% 10.7% 10.0% 19. owners/executives and managers were much more likely than employees to display control issues.6% 6.9% 8.1% 25. Each of these red flags tends to reflect the authority level of owners/executives and managers. The following chart shows the distribution of red flags based on the perpetrator’s level of authority. Among employee-level fraudsters.8% 30.6% 33.4% 6.3% 4.7% 11.6% 4.6% 10.1% 7. 2010 REPORT TO THE NATIONS ON OCCUPATIONAL FRAUD AND ABUSE | 71 .2% 12. which explains why this red flag shows up so often.0% 7.5% 26.3% Employee Manager Owner/Executive 47.4% 16.9% 16.3% 5. the most common behavioral red flag was financial difficulties.7% 5. Because employee-level fraudsters generally have lower incomes than managers or owners/executives. who are in a better position than employees to influence organizational decision-making.7% 6.7% 11.8% 6. which was present in nearly half of all employee fraud cases.8% 35.7% 2. While financial difficulty was still frequently cited in cases involving managers and owners/executives.6% 8. suspiciousness or defensiveness Addiction problems Refusal to take vacations Past employment-related problems Complained about inadequate pay Excessive pressure from within organization Past legal problems Instability in life circumstances Excessive family/peer pressure for success Complained about lack of authority 0% 12. arrange deals with outside parties and exert their control over the direction or tone of the organization.9% 7.3% 16.8% 48. Conversely.3% 5.0% 29. we would expect their motivation for committing fraud to more often be based on an immediate. pressing financial need.1% 12.7% 43.8% 9. unwillingness to share duties Unusually close association with vendor/customer Wheeler-dealer attitude Divorce/family problems 15.7% 40. Behavioral Red Flags of Perpetrators Based on Position30 Living beyond means Financial difficulties Control issues. it occurred much less often.7% 2. to have unusually close associations with vendors or customers or to exhibit a “wheeler-dealer” attitude.2% Behavioral Red Flag Irritability.Red Flags Based on Perpetrator’s Position The behavioral indicators that a fraud perpetrator displays can vary depending on a number of factors.8% 4.4% 9.

7% 22. individuals who engaged in financial statement frauds were much more likely than other perpetrators to exhibit control issues or to be under excessive pressure to perform within their organization. Among those who misappropriated assets.3% Financial Statement Fraud Corruption Asset Misappropriation 45.6% 6.0% 11.8% 39. living beyond one’s means and experiencing financial difficulties were not as common among financial statement fraudsters as others.0% 33.7% 28.7% 5. because while asset misappropriations and corruption schemes are almost always committed to enrich the fraudster.2% 20.0% 9. which we would expect to show up in the fraudsters’ behavior.7% 10.0% 10. This makes sense.7% 0% 10% 20% 30% 40% 50% Percent of Cases 31 The sum of percentages in this chart exceeds 100% because in many cases perpetrators displayed more than one behavioral red flag.3% 18.9% 8.0% 5.9% 9.1% 6. in many financial statement schemes. 72 | 2010 REPORT TO THE NATIONS ON OCCUPATIONAL FRAUD AND ABUSE .5% 5.0% 19.3% 6.7% 24.2% 23.4% 11.7% 10.0% 5.4% 2.9% 6.7% 8. A “wheeler-dealer” attitude was also more common in corruption cases than in other forms of fraud.3% 7.7% 26. An unusually close association with a vendor or customer was noted as a red flag in 45% of corruption cases.Perpetrators Red Flags Based on Scheme Type We also broke down the distribution of red flags based on the type of fraud.5% 19.7% 22. which is not surprising given that most corruption frauds involve bribery or some kind of illicit benefit.6% 4.0% 44. living beyond one’s means and financial difficulties were the two most common red flags.9% 14.3% 8.3% 9. Behavioral Red Flags of Perpetrators Based on Scheme Type31 Living beyond means Financial difficulties Control issues. As the chart below illustrates. other factors — such as meeting earnings forecasts or hitting budget targets — may be as much of a motivator as personal financial gain. unwillingness to share duties Unusually close association with vendor/customer Wheeler-dealer attitude Divorce/family problems 8.0% 18. suspiciousness or defensiveness Addiction problems Refusal to take vacations Past employment-related problems Complained about inadequate pay Excessive pressure from within organization Past legal problems Instability in life circumstances Excessive family/peer pressure for success Complained about lack of authority 8.0% 25.3% 13.4% 12. Different forms of occupational fraud result from different factors and circumstances.0% 5.1% 21.6% Behavioral Red Flag Irritability. Meanwhile. and 42% of all corruption perpetrators were identified as living beyond their means.4% 4.3% 42.3% 14.

We also noted that unusually close associations with vendors or customers was among the three most common red flags in every region except the United States and Canada.7% 16.4% 11.4% 4.6% 24. suspiciousness or defensiveness Addiction problems Past employment-related problems Past legal problems Refusal to take vacations Complaining about inadequate pay Instability in life circumstances Excessive pressure from within organization Excessive family/peer pressure Complaining about lack of authority 32 Number of Cases 392 391 205 201 173 141 127 124 85 75 74 64 54 51 39 37 Percent of Cases 44.9% 25.Red Flags Based on Region The following tables present the distribution of behavioral red flags based on the region in which the fraud occurred.2% 7. unwillingness to share duties Excessive pressure from within organization Wheeler-dealer attitude Refusal to take vacations Irritability.7% 22.7% The sum of percentages in these tables exceeds 100% because in many cases perpetrators displayed more than one behavioral red flag.5% 4.1% 16.8% 7.5% 17.0% 6.1% 14.2% 5.2% Complaining about inadequate pay Complaining about lack of authority Addiction problems Past employment-related problems Divorce/family problems Excessive family/peer pressure Instability in life circumstances Past legal problems Europe — 129 Cases Behavioral Red Flag Living beyond means Unusually close association with vendor Control issues.6% 23.0% 15.2% 5.0% 2. financial difficulties or living beyond one’s means was cited as the most common red flag.6% 5.0% 9.7% 44. suspiciousness or defensiveness Number of Cases 96 94 62 46 41 39 31 27 25 19 18 15 14 13 8 6 Percent of Cases 35.7% 8.3% 13.8% 4.4% 10.5% 14.8% 22.2% 12.9% 19.1% 14.2% 9.0% 6.8% 7. where it ranked 6th and 9th. 2010 REPORT TO THE NATIONS ON OCCUPATIONAL FRAUD AND ABUSE | 73 . unwillingness to share duties Financial difficulties Wheeler-dealer attitude Irritability.4% 22. suspiciousness or defensiveness Divorce/family problems Past employment-related problems Refusal to take vacations Addiction problems Past legal problems Excessive pressure from within organization Instability in life circumstances Complaining about inadequate pay Complaining about lack of authority Excessive family/peer pressure Number of Cases 54 36 33 32 29 22 21 17 16 10 10 10 9 8 7 6 Percent of Cases 41. unwillingness to share duties Divorce/family problems Wheeler-dealer attitude Unusually close association with vendor Irritability.3% 6.4% 7.2% 4.8% 7.9% 27.4% 34.6% 8.2% United States — 876 Cases Behavioral Red Flag Financial difficulties Living beyond means Control issues.32 In every region. Asia — 271 Cases Behavioral Red Flag Living beyond means Unusually close association with vendor Financial difficulties Control issues.9% 17. respectively.4% 7.8% 3.5% 5.

0% 31.3% 21.9% 3.5% 24.7% 15.3% 8. unwillingness to share duties Wheeler-dealer attitude Past employment-related problems Excessive family/peer pressure Refusal to take vacations Addiction problems Complaining about inadequate pay Complaining about lack of authority Instability in life circumstances Past legal problems Excessive pressure from within organization Oceania — 37 Cases Percent of Cases 40. suspiciousness or defensiveness Excessive family/peer pressure Past legal problems Excessive pressure from within organization Instability in life circumstances Number of Cases 20 13 11 9 9 8 8 6 5 4 4 2 2 1 Percent of Cases 54.4% 2. unwillingness to share duties Living beyond means Wheeler-dealer attitude Irritability.6% 3.4% 5.7% 26.3% 24.6% 16.7% 5.8% 10.9% 11.7% 74 | 2010 REPORT TO THE NATIONS ON OCCUPATIONAL FRAUD AND ABUSE .7% 16.6% 16. unwillingness to share duties Past employment-related problems Refusal to take vacations Irritability.3% 6.7% 14.9% 8.8% 6.0% 3.3% 1.5% 33.0% 10.1% 35.7% 14.0% 5.3% 26.9% 4.7% 16.6% 21.7% 11. suspiciousness or defensiveness Addiction problems Divorce/family problems Refusal to take vacations Unusually close association with vendor Complaining about inadequate pay Past employment-related problems Instability in life circumstances Complaining about lack of authority Excessive family/peer pressure Past legal problems Excessive pressure from within organization Number of Cases 29 29 28 22 18 17 14 12 11 10 10 7 3 3 1 1 Percent of Cases 34.7% 16.7% Number of Cases 24 19 16 10 10 10 9 6 5 5 4 3 3 3 2 1 Behavioral Red Flag Living beyond means Wheeler-dealer attitude Unusually close association with vendor Addiction problems Divorce/family problems Financial difficulties Control issues.9% 3.2% 13.5% 10.2% 21.8% 5.8% 10.8% 9.3% 13.5% 19.8% 32.0% 8.2% 16.1% 29.8% 10.3% 3.2% Central/South America and the Caribbean — 60 Cases Behavioral Red Flag Financial difficulties Living beyond means Unusually close association with vendor Divorce/family problems Irritability.0% Number of Cases 62 33 26 25 20 17 15 12 11 11 10 7 5 4 4 2 Behavioral Red Flag Financial difficulties Control issues.9% 2.2% 1.4% 20.4% 25.7% 24. suspiciousness or defensiveness Complaining about inadequate pay Divorce/family problems Excessive pressure from within organization Excessive family/peer pressure Addiction problems Past employment-related problems Complaining about lack of authority Instability in life circumstances Past legal problems Canada — 84 Cases Percent of Cases 60. unwillingness to share duties Wheeler-dealer attitude Refusal to take vacations Irritability.1% 11.0% 5.Perpetrators Africa — 102 Cases Behavioral Red Flag Living beyond means Unusually close association with vendor Financial difficulties Control issues.6% 1.5% 34. suspiciousness or defensiveness Control issues.

1. Primary Occupation More than half of the CFEs who participated in our study identified themselves as either fraud examiners or internal auditors. we received 1. The investigation must have been completed. As part of the survey. 4.843 cases. The CFE must have been reasonably sure the perpetrator(s) was/were identified. the victim organization and the methods of fraud employed. The case must have involved occupational fraud (defined as internal fraud. Another 12% stated that they are accountants. Respondents were also presented with 87 questions to answer. 2. respondents were asked to provide a detailed narrative of the single largest fraud case they had investigated that met four explicit criteria: 1.843 of which were usable for purposes of this Report. The 2010 Report to the Nations on Occupational Fraud and Abuse is based on the results of an online survey distributed The data in this study is based on 1. These questions covered particular details of the scheme. The data contained herein is based solely on the information provided in these 1.Methodology The 2010 Report to the Nations on Occupational Fraud and Abuse is based on the results of an online survey distributed to 22.843 cases of occupational fraud that were reported by CFEs.927 Certified Fraud Examiners (CFEs) in October 2009. 3. Overall. 2010 REPORT TO THE NATIONS ON OCCUPATIONAL FRAUD AND ABUSE | 75 . Who Provided the Data? We sent the survey to all CFEs in good standing at the time of the survey launch. The investigation must have occurred between January 2008 and the time of survey participation. We asked respondents to provide certain information about their professional experience and qualifications so that we could gather a fuller understanding of who was involved in investigating the frauds reported to us as part of our research. and just over 7% indicated they work as law enforcement officers. including information about the perpetrator. as well as fraud trends in general.939 responses to the survey. or fraud committed by a person against the organization for which he or she works).

and 12% of respondents work for a law enforcement agency.Methodology Primary Occupations of Survey Participants 61.0% 26. This category typically includes professionals such as internal auditors and fraud examiners.0% 1.5% 2. and nearly one-quarter of the participants have worked in fraud examination for more than 20 years.1% 6.2% Fraud Examiner Internal Auditor Accountant 11.4% 1.5% 28. Over 80 percent of respondents had more than five years of anti-fraud experience.8% Respondent’s Occupation Law Enforcement Consultant Corporate Security Private Investigator External Auditor Governance.3% 1.0% 0. Thirty-four percent of the survey participants identified themselves as working for a professional services firm that conducts fraud examinations on behalf of other companies or agencies. Risk and Compliance IT/Computer Forensic Specialist Bank Examiner Attorney Forensic Accountant Educator 0% 5% 10% 15% 20% 25% 30% Percent of Respondents Experience The professionals who took part in our study had a median of 12 years of experience in the fraud examination field.0% 3.1% 1.6% 7. 76 | 2010 REPORT TO THE NATIONS ON OCCUPATIONAL FRAUD AND ABUSE .2% 7.6% 2. Nature of Fraud Examinations Fifty-four percent of the respondents to our survey stated that they work in-house at an organization for which they conduct internal fraud examinations.

9% In-house Examiner 53.2% 5 years or less 6 to 10 years 11 to 15 years 15 to 20 years More than 20 years Experience Nature of Survey Participants’ Fraud Examination Work Law Enforcement 11.Experience of Survey Participants 30% 25% 20% 15% 10% 5% 0% 17.4% 2010 REPORT TO THE NATIONS ON OCCUPATIONAL FRAUD AND ABUSE | 77 .5% 24.8% Professional Services Firm 34.8% 17.4% Percent of Participants 7.9% 13.4% 26.

Appendix Breakdown of Geographic Regions by Country Africa — 112 Cases Country Cameroon Democratic Republic of the Congo Egypt Ethiopia Ghana Guinea Kenya Liberia Malawi Mauritius Mozambique Nigeria Republic of the Congo Senegal South Africa Sudan Tanzania Tunisia Uganda Zambia Zimbabwe Asia — 298 Cases Number of Cases 1 1 5 1 4 1 7 1 1 2 2 21 1 1 47 1 4 1 5 2 3 Country Afghanistan Bahrain Cambodia China Cyprus India Indonesia Iran Iraq Japan Jordan Kuwait Kyrgyzstan Lebanon Malaysia Oman Pakistan Philippines Qatar Saudi Arabia Singapore South Korea Sri Lanka Taiwan Tajikistan Thailand Turkey Turkmenistan United Arab Emirates Vietnam Number of Cases 1 1 2 62 3 37 27 1 1 16 4 3 1 4 22 4 8 16 5 9 7 5 2 4 1 2 20 2 27 1 78 | 2010 REPORT TO THE NATIONS ON OCCUPATIONAL FRAUD AND ABUSE .

Central/South America and the Caribbean — 70 Cases Country Argentina Bahamas Barbados Belize Bolivia Brazil Chile Colombia Costa Rica Dominican Republic Grenada Honduras Jamaica Mexico Nicaragua Panama Peru Saint Lucia Saint Vincent and the Grenadines Trinidad and Tobago Venezuela Europe — 157 Cases Number of Cases 7 1 1 1 1 12 1 3 1 2 1 1 4 20 2 1 3 1 2 4 1 Country Austria Belgium Bulgaria Czech Republic Estonia Finland France Germany Greece Hungary Ireland Italy Kosovo Liechtenstein Luxembourg Montenegro Netherlands Poland Portugal Romania Russia Serbia Slovakia Number of Cases 3 9 3 5 1 3 1 19 6 3 1 7 1 1 1 1 14 9 2 5 18 1 1 1 8 4 1 28 Oceania — 40 Cases Country Australia Fiji Micronesia New Zealand Slovenia Number of Cases 29 2 1 8 Spain Switzerland Ukraine United Kingdom 2010 REPORT TO THE NATIONS ON OCCUPATIONAL FRAUD AND ABUSE | 79 .

To increase employees’ perception of detection. if so. job loss and decreased morale and productivity — been made clear to employees? q Do employees know where to seek advice when faced with uncertain ethical decisions. has the use of such software been made known throughout the organization? 4. Is ongoing anti-fraud training provided to all employees of the organization? q Do employees understand what constitutes fraud? q Have the costs of fraud to the company and everyone in it — including lost profits.Fraud Prevention Checklist The most cost-effective way to limit fraud losses is to prevent fraud from occurring. implemented and tested a process for oversight of fraud risks by the board of directors or others charged with governance (e. Is an effective fraud reporting mechanism in place? q Have employees been taught how to communicate concerns about known or potential wrongdoing? q Is there an anonymous reporting channel available to employees. Is the management climate/tone at the top one of honesty and integrity? q Are employees surveyed to determine the extent to which they believe management acts with honesty and integrity? q Are performance goals realistic? q Have fraud prevention goals been incorporated into the performance measures against which managers are evaluated and which are used to determine performance-related compensation? q Has the organization established. and do they believe that they can speak freely? q Has a policy of zero-tolerance for fraud been communicated to employees through words and actions? 2. such as a third-party hotline? q Do employees trust that they can report suspicious activity anonymously and/or confidentially and without fear of reprisal? q Has it been made clear to employees that reports of suspicious activity will be promptly and thoroughly evaluated? 3.. the audit committee)? 80 | 2010 REPORT TO THE NATIONS ON OCCUPATIONAL FRAUD AND ABUSE . rather than dealt with passively? q Does the organization send the message that it actively seeks out fraudulent conduct through fraud assessment questioning by auditors? q Are surprise fraud audits performed in addition to regularly scheduled fraud audits? q Is continuous auditing software used to detect fraud and. are the following proactive measures taken and publicized to employees? q Is possible fraudulent conduct aggressively sought out. 1. adverse publicity.g. This checklist is designed to help organizations test the effectiveness of their fraud prevention measures.

including the following? ! Proper separation of duties ! Use of authorizations ! Physical safeguards ! Job rotations ! Mandatory vacations 7. Are strong anti-fraud controls in place and operating effectively. if one exists. Does the internal audit department. Are anonymous surveys conducted to assess employee morale? 2010 REPORT TO THE NATIONS ON OCCUPATIONAL FRAUD AND ABUSE | 81 . Are fraud risk assessments performed to proactively identify and mitigate the company’s vulnerabilities to internal and external fraud? 6. have adequate resources and authority to operate effectively and without undue influence from senior management? 8. Are employee support programs in place to assist employees struggling with addictions. Is an open-door policy in place that allows employees to speak freely about pressures. family or financial problems? 10. mental/emotional health.5. Does the hiring policy include the following (where permitted by law)? ! Past employment verification ! Criminal and civil background checks ! Credit checks ! Drug screening ! Education verification ! References check 9. providing management the opportunity to alleviate such pressures before they become acute? 11.

000 members in 140 countries worldwide. CPA. the ACFE is reducing business fraud worldwide and inspiring public confidence in the integrity and objectivity within the profession. By educating. Clearly. uniting and supporting the global anti-fraud community with the tools to fight fraud more effectively. Founded in 1988 by Dr.com. interactive professional training Comprehensive resources for fighting fraud. than 50. The CFE credential is preferred by businesses and government entities around the world and indicates expertise in fraud prevention and detection. the ACFE is reducing business fraud worldwide and providing the training and resources needed to fight fraud more effectively. 82 | 2010 REPORT TO THE NATIONS ON OCCUPATIONAL FRAUD AND ABUSE . Together with more than 50. self-study courses and articles Leading anti-fraud periodicals including Fraud Magazine®.About the ACFE The ACFE is the world’s largest anti-fraud organization and premier provider of anti-fraud training and education. The ACFE offers its members the opportunity for professional certification. Joseph T. The Fraud Examiner and FraudInfo Local networking and support through ACFE chapters worldwide Anti-fraud curriculum and educational tools for colleges and universities The positive effects of anti-fraud training are far-reaching.000 members in more than 140 countries. including books. the only way to combat fraud is to educate anyone engaged in fighting fraud on how to effectively prevent. the ACFE provides educational tools and practical solutions for anti-fraud professionals through initiatives including: Global conferences and seminars led by anti-fraud experts Instructor-led. For more information about the ACFE. detect and investigate it. Wells. visit ACFE. CFE.

and Fraud Prevention and Deterrence. risk/compliance professionals and educators. objectivity. In support of CFEs and the CFE credential. the ACFE provides the essential tools and resources necessary for anti-fraud professionals to accomplish their objectives. law enforcement personnel. Members all over the world have come to depend on the ACFE for solutions to the challenges they face in their professions. Legal Elements of Fraud. Members of the ACFE include accountants. business leaders. the ACFE: Provides bona fide qualifications for CFEs through administration of the Uniform CFE Examination Requires CFEs to adhere to a strict code of professional conduct and ethics Serves as the global representative for CFEs to business. 2010 REPORT TO THE NATIONS ON OCCUPATIONAL FRAUD AND ABUSE | 83 . internal auditors.com or call (800) 245-3321 / +1 (512) 478-9000. visit ACFE.Certified Fraud Examiners CFEs are anti-fraud experts who have demonstrated knowledge in four critical areas: Fraudulent Financial Transactions. To learn more. lawyers. government and academic institutions Provides leadership to inspire public confidence in the integrity. Fraud Investigation. educational tools and resources. Whether their career is focused exclusively on preventing and detecting fraudulent activities or they just want to learn more about fraud. all of whom have access to expert training. fraud investigators. and professionalism of CFEs Membership Immediate access to world-class anti-fraud knowledge and tools is a necessity in the fight against fraud.

Inc. ACFE seal. Inc. Certified Fraud Examiner and Fraud Magazine® are trademarks owned by the Association of Certified Fraud Examiners. .Phone: (800) 245-3321 / +1 (512) 478-9000 ©2010 Association of Certified Fraud Examiners. The ACFE logo.

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