Corporate Fraud Statistics That Every Business Should Know

Hasan Alsancak – “Corporate Fraud Statistics and Impact of Fraud to the Business”

Hasan Alsancak is a former Turkish chief of police, worked as head of Serious Fraud and Financial Investigations Bureau of Anti-Smuggling and Organized Crime Department.

 

 

According to the Global Fraud Study, the typical organization loses a median of 5% of revenues each year due to fraud. On a global scale, this translates to losses of approximately $3.7 trillion. In addition to lost revenue, there are also indirect costs, such as low employee morale, decreased productivity, ruined reputation, and tarnished brand images, all resulting from employee and employer fraud.

While both large and small organizations fall victim to occupational fraud, the companies with fewer than 100 employees are particularly vulnerable compared to their larger counterparts. Whereas larger companies were more likely to have anti-fraud practices in place—such as hotlines, employee fraud training, and internal departmental audits—smaller companies were less likely to implement similar anti-fraud controls that typically detect fraud sooner.

The median loss caused by fraud was $145,000, with 22% of those cases reporting losses of at least $1 million. Identity theft and especially credit card abuse were among some of the most common sources of fraud in small businesses. However, it’s smaller companies that take the bigger financial hit from unscrupulous behavior in their organizations. The companies with fewer than 100 employees lose a median of $155,000 each year as a result of fraud, compared to a median of $120,000 each year for businesses with 100 workers or more. And although asset misappropriation and corruption cases cited significant losses to companies, financial statement fraud caused the most financial damage, to the tune of an average of $1 million.

Workers’ compensation fraud is another source of angst for companies looking to control insurance costs and claims. Companies that reported to the National Insurance Crime Bureau (NICB) found that among the top culprits for false claims were prior injuries not related to work and “malingering” (i.e. claimants who exaggerated illness to escape work duties). For example, of the $30 billion loss caused by property and casualty fraud, the NICB estimated that about 25%, or $7.2 billion annually, is due to workers’ compensation fraud. In fact, the NCIB considered false workers’ compensation claims to be the “fastest-growing segment of insurance fraud”.

Who’s Committing Occupational Fraud?

It’s important to note that fraudsters can be found across a range of occupations, from doctors, lawyers, and engineers, to regular employees and ordinary individuals. Even more eye-opening is the fact that most occupational fraudsters—roughly 87%—are first-time offenders with clean employment histories.

Even more eye-opening is the fact that most occupational fraudsters—roughly 87%—are first-time offenders with clean employment histories.

77% of occupational frauds were committed by employees working in accounting, operations, sales, executive management, customer service, purchasing or finance.

As for sectors, banking and financial services, government and public administration, and manufacturing tended to have the largest number of fraud cases, while mining, oil and gas, and real estate reported the largest median fraud losses.

When it comes to workers’ compensation fraud, the NICB found that employers, employees and medical providers were the three primary groups driving corruption and billing schemes. And while insurance fraud occurs in every region of the U.S., California, Illinois and New York were the states that generated the most questionable claims.

By Hasan Alsancak

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