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Defining the true extent of corruption is difficult because much goes undiscovered, but estimates from organizations such as the UN, WEF and World Bank put it around $3.6 trillion annually. The latest report by the Association of Certified Fraud Examiners (ACFE), Occupational Fraud 2022: A Report to the nation, put the total loss for businesses at a staggering $4.7 trillion.
Occupational fraud is a wide-ranging term and includes things such as asset appropriation and financial crimes committed by individuals or small numbers of people by way of embezzlement and cash theft.
The ACFE report highlights that the weak link in any business is also what many consider its strongest asset and that is employees. All organizations must entrust its employees with access to or control over its assets. It is this very trust that can make organizations vulnerable to occupational fraud. Because all frauds, at their core, are based upon breaches of trust.
While occupational fraud can be conducted at almost any level in an organization, the ACFE report finds that 23% is committed by owners or executives. Although the number of frauds is lower than for subordinate employee positions, the financial cost is almost always much higher. Taken across departments and functions, Operations (15%), Accounts (12%), Executives (11%) and Sales (11%) accounted for around half of all cases.
Every investigation into bribery and corruption or fraud suggests that any organization regardless of size or field of activity is at risk. Losses may be higher in real terms in larger organizations, but the scale of losses is comparable across all sizes. On average, the ACFE suggests that organizations lose 5% of revenue annually. Interestingly 85% of fraudsters displayed behavioural red flags of fraud.
The survey by DNV highlighted that few businesses are at an advanced level of maturity when it comes to anti-bribery systems. It also showed that responsibility is often delegated to an executive officer or managing director rather than a dedicated council, committee or team which is the recommended practice under the anti-bribery management system standard ISO 37001. The ISO practice is to avoid conflict of interest which can occur when a person is accountable for operations and profit and loss.
A policy around “whistle blowing” is seen as instrumental in any structured approach to uncover incidents. The AFCE report indicates that digital methods such as email or web reporting were more effective than a telephone hotline. Regardless of channel, it would seem that most cases are reported by employees.
Interestingly almost half of all occupational fraud occurs due to lack of any internal controls or inadequacy of existing controls. In 81% of cases where a fraud was discovered, the organization concerned amended its existing anti-fraud controls. This clearly shows that in most organizations, there is a definite lack of controls and provides a compelling argument for implementing a structured anti-bribery approach sooner rather than later.