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India has reported the largest number of occupational frauds and abuse in Southern Asia, says ACFE's Report to the Nations

Association of Certified Fraud Examiners
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Association of Certified Fraud Examiners

Highlights

India has the largest number of occupational fraud, in particular corruption, noncash, billing, financial statement fraud and expense reimbursement, in Southern Asia, according to Report to the Nations: 2020 Global Study on Occupational Fraud and Abuse.

India has the largest number of occupational fraud, in particular corruption, noncash, billing, financial statement fraud and expense reimbursement, in Southern Asia, according to Report to the Nations: 2020 Global Study on Occupational Fraud and Abuse. The study was conducted by the Association of Certified Fraud Examiners (ACFE).

ACEF studied 103 cases of occupational corruption in the Southern Asia of which 77 cases of frauds were reported from India. Other countries covered in Southern Asia were Afghanistan - reported 3 cases, Bangladesh - reported 4 cases, Nepal - reported 1 case, Pakistan - reported 15 cases and Sri Lanka - reported 3 cases. These frauds led to a median loss of USD 1,17,000.

Talking about the most common occupational fraud that occurs in Southern Asia including India includes corruption (contribution 76 per cent), Noncash (contribution 23 per cent), billion (contribution 17 per cent), financial statement fraud (contribution 12 per cent) and expense reimbursement (contribution 10 per cent). Other forms of frauds practised in the region include skimming, payroll, cash larceny, cash on hand, register disbursements and check and payment tampering.

The frauds in the region were detected majorly through the tip (48 per cent), internal audit (18 per cent), document examination (6 per cent), management review (5 per cent), notification by law enforcement (4 per cent) and surveillance/ monitoring (4 per cent) among others.

About the study

The study covered 2,504 cases from 125 countries, which led to total losses of more than $3.6 billion and the average loss per case stands at $15,09,000. It is an analysis of occupational fraud which was investigated between January 2018 and September 2019. This is a tiny fraction of the number of frauds committed each year against millions of businesses, government organizations, and nonprofits throughout the world. The data presented in the report was gathered through the 2019 Global Fraud Survey. Key findings of the study:

* Corruption was the most common scheme in every global region.

* CEF's estimate that organizations lose 5 per cent of revenue to fraud each year.

* Median loss per case stands at $1,25,000.

* Average loss per case stands at $15,09,000

* Asset Misappropriation schemes are the most common 86% of cases and least costly $1,00,000 median loss.

* Financial statement fraud schemes are the least common 10% of the cases and most costly $9,45,000 median loss.

* Organizations with fraud awareness training for employees were more likely to gather tips through, formal reporting mechanisms in which 56 per cent of tips were provided with training while 37 per cent of tips without training.

* The report says 43 per cent of the schemes were detected by tip and half of those tips came from employees.

* Telephone hotline and email were each used by whistleblowers in 33% of the cases.

* It says that more than half of all occupational frauds came from four departments, namely operations (15 per cent), accounting (14 per cent), executive/ upper management (up 12 per cent) and sales (11 per cent).

* It says, 42 per cent of occupational fraudsters were living beyond their means and 26 per cent of occupational fraudsters were experiencing financial difficulties.

* The report says occupational fraudsters who had been with their organizations at least 6 years caused twice the loss of less-tenured employees.

* Males committed more frauds and caused higher losses. It highlights that males contributed 72% in frauds and caused a median loss of $1,50,00, while the female had 28% contribution in these cases leading to a median loss of $85,000.

Categories of Occupational Fraud

The report prepared by the Certified Fraud Examiners (CFEs) highlights three categories where occupational frauds happen, majorly. They are:

* Asset Misappropriation: This involves an employee stealing or misusing the employing organization's resources, occurs in the vast majority of fraud schemes (86 per cent of cases); however, these schemes also tend to cause the lowest median loss at USD 100,000 per case.

* Corruption: This includes offences such as bribery, conflicts of interest, and extortion—falls in the middle in terms of both frequency and financial damage. This occurs in 43 per cent of cases and causes a median loss of USD 200,000.

* Financial Statement Fraud Schemes: In this, the perpetrator intentionally causes a material misstatement or omission in the organization's financial statements, are the least common (10 per cent of schemes) but the costliest category of occupational fraud.

The study says, in one-third of the cases in the study, the fraudster committed more than one of the three primary categories of occupational fraud. 26 per cent of fraudsters undertook both asset misappropriation and corruption schemes, 3 per cent misappropriated assets and committed financial statement fraud, 1 per cent engaged in both corruption and financial statement fraud, and 5 per cent participated in all three categories.

Reported cases by region

* The United States and Canada: 895 (46 per cent) cases were covered.

* Sub-Saharan Africa: 301 (15 per cent) cases were covered.

* Asia-Pacific: 198 (10 per cent) cases were covered.

* Western Europe: 128 cases (7 per cent) cases were reported.

* The Middle East and North Africa: 127 cases (7 per cent) cases were reported.

* Southern Asia: 103 cases (5 per cent) cases were reported.

* Latin America and the Caribbean: 101 cases (5 per cent) cases were reported.

* Eastern Europe and Western/ Central Asia: 95 (5 per cent) cases were reported.

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