ACFE Says 2004 Fraud Statistics Report Shows Need for Sarbanes-Oxley Requirements

July 9, 2004

The Association of Certified Fraud Examiners (ACFE), the Austin, Texas-based provider of anti-fraud training and education worldwide, announced the release of the 2004 Report to the Nation on Occupational Fraud and Abuse, a comprehensive report that sheds light on occupational fraud and abuse while offering stark lessons and valuable insights about its prevention and detection.

Based on 2004 report findings, the typical organization loses 6 percent of its annual revenues to occupational fraud. If multiplied by the U.S. Gross Domestic Product, which in 2003 totaled just under $11 trillion, it would translate into $660 billion in annual fraud losses.

The report strongly supports Sarbanes-Oxley’s requirements for audit committees to establish confidential reporting mechanisms.

Occupational frauds were much more likely to be detected by a tip than through other means such as internal audits, external audits and internal controls.

Among frauds committed by owners and executives, which tend to be the most costly, over half of all cases were identified by a tip. The report also indicates that confidential reporting mechanisms can significantly reduce fraud losses.

Additionally, while Sarbanes-Oxley only requires publicly traded companies to establish confidential reporting mechanisms for employees, the report suggests that these programs should also embrace third-party sources such as customers and vendors.

Among cases that were detected by a tip, 60 percent of the tips came from employees, 20 percent came from customers, 16 percent came from vendors and 13 percent came from anonymous sources. Companies that have implemented basic employee hotlines to ensure Sarbanes-Oxley compliance could detect significantly more frauds by making their hotlines available to third parties as well.

The 2004 Report to the Nation also reinforces the belief that the most cost-effective way to deal with fraud is to prevent it. According to its findings, once an organization has been defrauded it is unlikely to recover its losses. The median recovery among victim organizations was only 20 percent of the original loss. Almost 40 percent of victims recovered nothing at all.

The ACFE’s 2004 Report to the Nation aims to better educate the public and anti-fraud professionals about the threat of fraud. The report summarizes the opinions of experts on the percentage and amount of organizational revenue lost to all forms of occupational fraud and abuse, examines the characteristics of the employees who commit occupational fraud and abuse, determines what kinds of organizations are victims of occupational fraud and abuse, categorizes the ways in which serious fraud and abuse occurs; and offers lessons and insight to any organization concerned with limiting its exposure to occupational fraud and abuse.

The 2004 Report to the Nation is available to download at www.CFEnet.com/report.

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