Understanding the trends behind various forms of financial crime is key to staying ahead of the threat they pose. Now, the Association of Certified Fraud Examiners (ACFE) has released their latest Report to the Nations study on the global impact of occupational fraud. This report – spanning over 2000 case studies across 133 countries and in 23 industries – reveals key insights into the nature of occupational fraud and empowers businesses to proactively address the threat of fraud.  

The Patterns of Occupational Fraud – Proactive Security with KYC 

Understanding the trends behind various forms of financial crime is key to staying ahead of the threat they pose. Now, the Association of Certified Fraud Examiners (ACFE) has released their latest Report to the Nations study on the global impact of occupational fraud. This report – spanning over 2000 case studies across 133 countries and in 23 industries – reveals key insights into the nature of occupational fraud and empowers businesses to proactively address the threat of fraud.   

Different industries display a high rate of variance for occupational fraud. Listed below are the top 10 industries by incidence rate.  

The first notable trend is how badly the banking and financial services industry is affected by occupational fraud. With an incidence rate nearly double that of the second highest rate and more than four times that of the technology industry, 2022’s figures highlight how badly affected the banking and financial services industry is affected by occupational fraud.  

Secondly, the technology industry’s significant increase in the incidence rate for occupational fraud is notable because it was also the only industry to experience a rise in economic crime in 2021.¹ Although this is a change that specifically affects the technology industry, the rapid changes in an industry’s incidence rate for both occupational fraud and economic crime highlight the volatile and fluid nature of today’s economic crime threat landscape.   

Just as with industries, different departments also represent a significant variance in the risk they pose for occupational fraud. Since 2018, the operations department has posed the highest risk of occupational fraud from the perspective of incidence rate. Across all departments in 2022 and 2020, corruption has ranked as the most pervasive category of occupational fraud – an evolving threat that is especially prevalent in South Africa and highlights the essentiality of Politically Exposed Persons (PEP) checks.  

Organizational Size and Annual Gross Revenue – Variance in Identity  

As with other forms of economic crime, the incidence rate and financial losses from occupational fraud vary depending on an organization’s size and annual gross revenue. Organizational size plays a key role in affecting the incidence rate. 

• Less than 100 employees (22%) 
• 100-999 employees (24%) 
• 1,000-9,999 employees (29%) 
• 10,000+ employees, (25%) 

However, even though larger organizations typically experience a high incidence rate, it is smaller organizations that will typically suffer the most from incidents of occupational fraud.  

“Small businesses (those with fewer than 100 employees) had the highest median loss of USD 150,000, while large organizations (those with more than 10,000 employees) had a median loss of USD 140,000. It is important to note, however, that a small business likely will feel the impact of a loss this size much more than its larger counterparts.” – ACFE.²

Incidence rate and risk for occupational fraud also vary according to annual gross revenue. Businesses with less than $50 million in annual gross revenue account for by far the highest incidence rate of occupational fraud.  

• Less than USD 50 million (38%) 
• USD 50 million – USD 499 million (26%) 
• USD 500 million – USD 999 million (12%) 
• USD 1 billion or more (24%) 

This discrepancy between large and small businesses is significant and poses a serious risk for smaller businesses. With fewer resources and less capital in reserve, smaller businesses are significantly more vulnerable when it comes to dealing with the fallout from an incident of occupational fraud. Anti-fraud controls, such as KYC during the employee screening process, cannot afford to be overlooked, regardless of the organizational size or annual gross revenue of the business in question.  

Corruption – The Most Pervasive Form of Occupational Fraud  

When ranked by the number of incidents of occupational fraud that included an incidence of a certain fraud, corruption consistently ranks as one of the riskiest forms of occupational fraud, across all industries and every global region.  

In 2022, across all industries, corruption remained the most pervasive type of occupational fraud. Across the top 10 industries ranked by incidence rate of occupational fraud, corruption has an average occurrence rate of 52.8%. Across various sectors, corruption is most pervasive in energy (64%), manufacturing (59%), transporting and warehousing (59%), information (58%), and government and public administration (57%).  

These rates continue trends that were established in 2020. Across the top 10 industries ranked by incidence rate of occupational fraud for 2020, corruption’s average incidence rate was 55.5%. Across the various sectors, corruption was most pervasive in energy (66%), telecommunications (56%), transporting and warehousing (52%), government and public administration (48%), and construction (47%).   

The Impact of Anti-Fraud Controls and Identity Verification Services  

Just as grasping the trends for a specific type of economic crime can empower a business to better protect against it, so the perpetrators of occupational fraud display common trends that can empower a business to better deter and detect perpetrators of occupational fraud.  

“A fraudster living beyond his or her means is the most common red flag by a sizeable margin. This has ranked as the #1 red flag in every study since 2008.” – ACFE.

Living beyond one’s means – defined as spending more money than one can afford to spend – will typically entail a person making purchases on credit and accumulating a large amount of debt. In 2022, the perpetrator “living beyond their means” was the most dominant red flag for occupational fraud and was featured in 39% of occupational fraud incidents, while “financial difficulties” was the second most common red flag and featured in 25% of incidents. 

“Background checks are an important tool in the fight against fraud, as they can prevent organizations from hiring individuals with known histories of misconduct.” – ACFE.

Background checks that form part of the hiring process are a crucial part of a business’s fight against occupational fraud. Anti-fraud controls in general prove immensely successful at significantly reducing the cost of occupational fraud incidents.  

Shockingly, however, 43% of organizations that fell victim to an incident of occupational fraud did not conduct any background checks on the employee who would later commit occupational fraud. Furthermore, of those organizations who did carry out background checks on the individual, 21% of the time these revealed clear red flags. Nevertheless, these individuals were hired anyway and would later go on to commit occupational fraud against their employers.  

Comprehensive KYC and background checks must form an integral part of a business’s employee onboarding process.  

KYC and Employee Verification During the Onboarding Process 

As South Africa’s leading provider of world-class due diligence and remote-onboarding solutions, ThisIsMe is proud to be at the forefront of a trust-based and privacy-compliant digital world. To experience how our full suite of KYC, advanced due diligence services, risk assessment and data validation services can help your business address the threats posed by perpetrators of occupational fraud, book a demonstration by contacting our team here.

Citations 

1. PwC. Global Economic Crime and Fraud Survey. 2022. 
2. Association of Accredited Fraud Examiners. Report to the Nations. 2020. 
3. Association of Accredited Fraud Examiners. Report to the Nations. 2020. 
4. Association of Accredited Fraud Examiners. Report to the Nations. 2020.