Tips Still Top the List of Fraud Detection Methods

Twenty years ago, the first Report to the Nation on Occupational Fraud and Abuse published by the Association of Certified Fraud Examiners (“ACFE”) revealed that tips and complaints from other employees were the most common source of initial detection of occupational frauds. Subsequent editions of this study have consistently reinforced this finding, including the most recent global Report, published in 2016.  This year’s study, which presents an analysis of 2,410 cases of occupational fraud investigated between January 2014 and October 2015, found that tips were the most common method of detection by a wide margin, accounting for 39.1% of all cases.

Organizations that had reporting hotlines were much more likely to detect fraud through tips than organizations without reporting hotlines (47.3% vs. 28.2%, respectively). One reason suggested for this disparity is that smaller organizations are significantly less likely than larger organizations to make reporting hotlines available, with almost three quarters of larger organizations utilizing reporting hotlines compared to only one quarter of smaller organizations.

Telephone hotlines were the largest single formal reporting mechanism used by whistleblowers regardless of organization size, accounting for 39.5% of all tips.  However, tips received through internet-based reporting mechanisms such as email and web-based/online forums provided, in aggregate, more than half of tips received in the 2016 study.  Employees are the most likely group to provide tips that lead to fraud detection, although more than 40% of tips in the 2016 study came from non-employees groups such as customers, vendors and other parties.

A recent case of expense reimbursement fraud investigated by EisnerAmper was revealed through an organizational reporting hotline by an employee whistleblower.  This tip initially led to an internal investigation by the organization and ultimately the hiring of EisnerAmper to investigate and quantify an alleged misappropriation by an employee. The investigation consisted of interviewing key personnel in the organization, a review of expense documentation and support, and a forensic technology review of the employee’s laptop and mobile phone.  The investigation ultimately revealed multiple patterns of expense reimbursement fraud and a multi-million dollar loss by the organization.

The ACFE’s research consistently demonstrates that tips are the most common method by which occupational fraud is detected, far surpassing other detection methods such as internal audit and management review. Both large and small organizations are likely to benefit from making multiple mechanisms available for employees and non-employee groups to report fraud.

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• When To Conduct a Fraud Risk Assessment
• Fraud Risk Assessments: A Key Tool for Organizations, Forensic Accountants and Internal Auditors
• Workplace Fraud – Limiting Opportunity
• Can You Trust the Trustee?
• Tips Still Top the List of Fraud Detection Methods
• Fraud Detection – Why, How and When
• The Financial Cost of Occupational Fraud on Business
• Overcoming Expense Reimbursement Fraud