Stop Fraud Before It Starts!
Don’t be a fraud. Don’t stand for fraud. Do your part to stop it. Ask how you can prevent it.
Every organisation needs employees. Every employee can commit occupational fraud.
Occupational fraud (fraud committed by an individual against the organisation that employs them) is a significant risk to the operations of every organisation, regardless of size, industry, or region. It includes asset misappropriation, corruption and financial statement frauds and is probably the largest and most expensive type of financial crime in the world, estimated as costing organisations 5% of revenue each year.
Fraud is a hidden crime, based on deception. A key part of deterring, preventing and detecting fraud is being aware of it. What fraud is. What it looks like for your organisation. What stops people being as likely to commit it. What stops people being able to commit it. What the red flags are indicating where it is taking place.
At the start of International Fraud Awareness Week, we highlight some of the key findings of the Association of Certified Fraud Examiner’s (ACFE) Report to the Nations. Based on 1,921 investigations conducted across the world in 2023 the report states that:
The Nature of Fraud
- Asset misappropriation frauds are the most likely and least costly, financial statement frauds the least likely but most costly
- The average length of a fraud before detection is 12 months
- 11% of fraudsters don’t conceal the fraud. Where concealment takes place the most common methods are the destruction or amendment of physical documents
The case for being proactive: it works!
- over half of occupational frauds occur due to a lack of internal controls (32%) or an override of existing controls (19%). Proactively assessing fraud risks and ensuring that effective anti-fraud controls are in place will identify frauds quicker and reduce losses incurred by organisations
- proactive methods of detecting fraud, such as document examination, management review and auditing detect frauds much quicker than passive methods such as notification by law enforcement or confession. Organisations that do not actively seek out fraud are likely to experience schemes that continue for much longer and at a higher cost
- four controls were identified as having a 50% reduction on the duration and therefore cost of frauds: financial statement audits, hotlines, surprise audits and proactive data analysis. The last two were also found to be among the least commonly implemented controls showing an area where your organisation may be able to strength your anti-fraud controls
- the most common way frauds are detected is a tip off either by an employee, customer, supplier or competitor. Ensuring that your organisation has both internal and external fraud reporting mechanisms, if not in place, will help reduce fraud losses by enabling you to respond
The case for being proactive: it is required
The Economic Crime and Transparency Act 2023 (ECCTA) introduced the offence of ‘failure to prevent fraud’. Under this offence a large organisation can be prosecuted if a fraud takes place, and they cannot demonstrate that reasonable procedures were in place to prevent it.
A large organisation is one which meets two of the following three criteria:
- more than 250 employees
- more than £26 million turnover
- more than £18 million on the balance sheet
Guidance on the reasonable procedures, issued in November 2024, confirms that the offence will come into effect from 1st September 2025 to give time for organisations to implement changes and meet the requirements. The guidance includes six principles for organisations to consider:
- top level commitment
- risk assessment
- proportionate procedures
- due diligence
- communications
- monitoring and review
The scope of the offence is broad, including associated persons, such as suppliers and agents as well as employees, and frauds where the organisation is not the main beneficiary.
Whilst the offence applies only to large organisations the guidance highlights that the principles represent good practice and may be helpful for smaller organisations. Smaller organisations may also be an associated person, e.g. a supplier of a large organisation falling within scope.
The time is now!
This Fraud Awareness Week we encourage organisations to consider their anti-fraud controls and be confident that fraud risks have been assessed and reasonable processes put in (or confirmed to be in) place. Now is the time to consider whether your organisation has appropriate anti-fraud controls in place, in light of both the ACFE’s findings on the effectiveness of controls in reducing the burden of fraud on your organisation, and the changing requirements under ECCTA.
Fraud costs. Having anti-fraud controls pays.
Elsiarc - Counter Fraud Specialists
Elsiarc can help organisations design, implement and where required, monitor proportionate anti-fraud controls, partnering our knowledge of fraud controls and both second- and third-line defences with subject matter experts within the business who know the current processes best.
We work collaboratively and pragmatically to ensure that processes are based on thorough risk assessments and are fit for purpose.