“…Most fraud schemes are discovered when the main perpetrator confesses to authorities after being caught (a la Bernard Madoff) or when they are close to getting caught…” (this “journalist” is, in my opinion…“Uninformed”)
I am amazed at what can get published these days; well, maybe not. The first amendment is a wonderful thing, and if you “live” by the pen but avoid known facts, you likely position yourself at a dead-end-place, in the crosshairs of something very common-sensible–let’s call that something: hard data that obliterates your “claims.” I’d also liken it to irrefutable evidence.
This column uses data, informed judgments, and yes—opinions, mine and others. However (“neither am I an attorney, nor am I an idiot” – quoted here from someone I respected very much), effort is used here to name sources of hard data to justify either the direct position taken, or, to explain the data supporting the positions — from those source-studies.
Very simply: FACTS allow my disagreement with the initial “Uninformed” quote, which came to me via Google alerts…so, the most fundamentally-available data has…served its purpose.
From Daniel Patrick Moynihan: “Everyone is entitled to their opinion, but not their own facts.”
The “author” of the (“Uninformed”) lead-off statement must not understand the most basic of facts from the Association of Certified Fraud Examiners. The best source of uncovering fraud is…Tips…from:
- an employee,
- a customer,
- a vendor,
- even “anonymous” is included in this category.
All from studies executed and published by the ACFE within that organization’s Reports to the Nations.
Repeating from a blog posting of at least a year ago… (plus 2012’s data):
The Association of Certified Fraud Examiners (“ACFE”) distributes its “Report to the Nations on Occupational Fraud and Abuse” every two years. Their studies have dissected thousands of fraud cases, provided multiple slices of the data, and a number of key findings. Of specific relevance here are the following two charts, displaying a clear winner, but for a not-so-obvious, yet-entirely-logical reason.
| Frauds initially discovered via: | 2012 | 2010 |
|---|---|---|
| Tips | 43.3% | 40.2% |
| Management Review | 14.6 | 15.4 |
| Internal Audit | 14.4 | 13.9 |
| “By Accident” | 7.0 | 8.3 |
| Account Reconciliation | 4.8 | 6.1 |
| Document Examination | 4.1 | 5.2 |
| External Audit | 3.3 | 4.6 |
| Surveillance/Monitoring | 1.9 | 2.6 |
| Law Enforcement & All Other | 6.7% | 3.6% |
| Frauds initially discovered via: | 2008 | 2006 | 2004 | 2002 |
|---|---|---|---|---|
| Tips | 46.20% | 34.20% | 39.60% | 43% |
| By Accident | 20.0 | 25.4 | 21.3 | 18.8 |
| Internal Audit | 19.4 | 20.2 | 23.8 | 18.6 |
| Internal Controls | 23.3 | 19.2 | 18.4 | 15.4 |
| External Audit (all instances) | 9.1 | 12.0 | 10.9 | 11.5 |
| External Audit: SEC clients only | 4.1 | 4.5 | 6.1 | N/A |
| Notified by Law Enforcement | 3.20% | 3.80% | 0.90% | 1.70% |
The primary take-away here is not that “Tips” clearly represents the best source of uncovering fraud, but that we are not fully realizing the robust value of that BEST source (a tip from an employee, a customer, a vendor). An even more important insight, however, is WHY that source is so powerful…
…The further up from the bottom you go, the higher the knowledge of the business processes, and therefore the greater the aptitude to catch fraud…not a difficult concept, right?
Another quote for you all (and for “Uninformed” too):
Michael B. Mukasey/WSJ: Two basic rules of both journalism and history: “…if you ask the wrong questions you get the wrong answers, and if you don’t look for facts you won’t find them.”