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US fraud levels rise as crisis continues

The Association Of Certified Fraud Examiners : 20 April, 2009  (Technical Article)
Survey report from the ACFE reveals that employees pose greatest fraud risk as financial crimes continue to rise in the USA
Intense financial pressure during the economic crisis has led to an increase of fraud, according to a survey of fraud experts conducted by the Association of Certified Fraud Examiners (ACFE). Results of the survey, published in the new ACFE report 'Occupational Fraud: A Study of the Impact of an Economic Recession,' also found that layoffs are pervasive and are leaving holes in organizations' internal control systems.

The survey responses of more than 500 randomly selected Certified Fraud Examiners (CFEs) were compiled by the Austin, Texas-based ACFE, the world's largest anti-fraud organization and premier provider of anti-fraud training and education. CFEs are experts in fraud detection, prevention and deterrence, and must pass a rigorous exam as well as meet high professional, educational and ethical standards.

More than half (55.4 percent) of respondents said that the level of fraud has slightly or significantly increased in the previous 12 months compared to the level of fraud they investigated or observed in years prior. Additionally, about half (49.1 percent) of respondents cite increased financial pressure as the biggest factor contributing to the increase in fraud, compared to increased opportunity (27.1 percent) and increased rationalization (23.7 percent).

"The message to Corporate America is simple: Desperate people do desperate things," said ACFE President James Ratley, CFE. "Loyal employees have bills to pay and families to feed. In a good economy, they would never think of committing fraud against their employers. But especially now, organizations must be vigilant during these turbulent times by ensuring proper fraud prevention procedures are in place."

The study also found that:

* Employees pose the greatest fraud threat in the current economy. When asked which, if any, of several categories of fraud increased during the previous 12 months, the largest number of survey respondents (48 percent) indicated that embezzlement was on the rise.

* Layoffs are affecting organizations' internal control systems. Nearly 60 percent of CFEs who work as in-house fraud examiners reported that their companies had experienced layoffs during the past year. Among those who had experienced layoffs, almost 35 percent said their company had eliminated some controls, while 44.2 percent said the layoffs had no effect on controls and only 3.2 percent said their company had increased controls.

* Fraud levels are expected to continue rising. Almost 90 percent of respondents said they expect fraud to continue to increase during the next 12 months. Additionally, the fraud most expected to increase is embezzlement.

The survey was conducted to gain insight into the correlation between economic downswings and fraudulent activity.
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