6 Key Fraud Findings for Government Finance Officers

Written by Jamie Black | Sep 12, 2016 6:32:37 PM

Reminders are often critical. I know I have a 9am meeting but without the reminder, I likely would be buried in some other task and miss my conference call.

This article provides a quick summary of the recent Association of Certified Fraud Examiners (ACFE) 2018 Report to the Nations on Occupational Fraud and Abuse and acts as a reminder.

We should all be reminded how critical strong internal controls are for your organizations success. Further, they form the front line protecting your organization from fraud and abuse.

The had several findings that will be very interesting to finance managers in local government.

The 2018 report is based on the results of the 2017 survey. As part of the survey, respondents were asked to provide a detailed narrative of the single largest fraud case they had investigated since January 2014. Respondents were then presented with 81 questions to answer regarding the particular details of the case, including information about the perpetrator, the victim organization, and the methods employed, as well as fraud trends in general. While the report is very interesting from many respects, there are 6 points we want to highlight.

6 Findings relevant for Government Finance Officers

The most prominent organizational weakness that contributed to the frauds in the study was a lack of internal controls, which was cited in 29.3% of cases, followed by an override of existing internal controls, which contributed to just over 20% of cases.
Government and public administration experienced the third highest incidence of losses due to error and fraud, with a median loss of $109,000/ incident.
Small organizations had a significantly lower implementation rate of anti-fraud controls compared to large organizations.
Small government organizations are more susceptible to fraud. Out of all the government bodies included in the report, from federal to local, small organizations (those with fewer than 100 employees) accounted for the greatest number of fraud occurrences overall. In addition, of the fraud occurrences in small organizations, those involving cash occurred over twice as frequently.
The presence of anti-fraud controls was correlated with lower fraud losses. ACFE compared organizations that had specific anti-fraud controls in place against organizations lacking those controls and found that where controls were present, fraud losses were 14.3%–54% lower
Anti-fraud controls also correlated with much faster detection. Frauds were detected 33.3%–50% more quickly if the organization used such controls.

The report also notes that total losses represented in the study were actually significantly higher. However, to conservatively report loss amounts, the top and bottom 1% of results were excluded from the total loss figure. Even viewing the losses reported through a conservative lens, a typical loss of $108,000 per fraud can be devastating to many organizations, especially when combined with the indirect fallout that often accompanies a fraud scheme.

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