Fighting Fraud: Insights From a Recent Study on Occupational Theft
Although understanding the dollars in parking and mobility is essential, ensuring your organization isn’t losing money due to unchecked fraud is equally vital.
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Every 2 years, the Association of Certified Fraud Examiners (ACFE) surveys thousands of certified fraud examiners about the methods, costs, and effects of occupational fraud and shares its findings in a report. Released in March 2024, the 13th edition of this report — which is titled “Occupational Fraud 2024: A Report to the Nations” — provides an inside look at how fraud is committed, detected, and prevented in organizations worldwide.
This data can help parking and transportation professionals benchmark their fraud risk-management programs and implement necessary controls to prevent or minimize losses.
The schemes
Among its findings, the ACFE’s report covered 1,921 cases of fraud that were investigated between January 2022 and September 2024. Involving 138 countries, the cases had total losses of more than $3.1 billion. The median loss per case was estimated at $145,000, while the average loss per case was estimated at $1.7 million. All told, organizations are estimated to lose 5% of revenue to fraud each year, according to the report.
Asset misappropriation was the most common but least costly form of occupational fraud, accounting for 86% of cases with a median loss of $120,000. Asset misappropriation involves an employee using an employer’s assets for personal gain, including:
- Skimming, or stealing cash before it is recorded
- Payroll theft, or paying employees for work they don’t do or stealing time
- Billing schemes, or making false claims for payment — for example, expense reimbursement and false workers’ compensation claims
- Misuse of assets, or using company assets for personal use
The most common asset misappropriation schemes were billing schemes and theft of non-cash items, each comprising 22% of cases. Billing schemes had a median loss of $100,000, while check and payment tampering schemes had a median loss of $155,000.
Financial statement fraud involves the intentional misrepresentation of a company’s financial condition. Examples in the parking and transportation industry include:
- Parking subcontractor kickbacks
- Manipulating depreciation provisions
- Falsifying sales
- Recording false profits on disposals
- Entering sales agreements that produce no profit
- Offsetting gains against unrecorded losses
Although the least common, with only 5% of cases, financial statement fraud is the costliest, incurring a median loss of $766,000.
Detecting fraud
The typical occupational fraud lasts 12 months before detection. All told, 43% of frauds are detected by tips, with more than half coming from employees and a third from vendors. Email and web-based reporting mechanisms were used the most to share tips.
To combat fraud, organizations should enhance anonymous reporting mechanisms, provide regular fraud detection training, and promote a strong whistleblower policy. Utilizing advanced monitoring technologies and conducting frequent audits can help detect suspicious activities early. Fostering a culture of integrity and open communication, along with collaborating closely with vendors on fraud prevention, further strengthens an organization’s defenses.
Who commits fraud
In 2024, 84% of perpetrators displayed at least one behavioral “red flag” before their frauds were detected. Recognizing red flags is crucial for fraud prevention.
Common red flags of perpetrators of fraud include:
- Living beyond their means
- Financial difficulties
- Control issues/unwilling to share duties
- Divorce/family problems
- Unusually close associations with customer/vendor
- Wheeler-dealer attitude
- Irritability, suspiciousness, or defensiveness
- Addiction problem
- Complaint about inadequate pay
- Refusal to take vacation
In addition to red flags, certain demographic characteristics are associated with more frequent and costly occurrences of occupational fraud. For example, median losses associated with fraud conducted by owners or executives ($459,000) were more than seven times greater than that carried out by employees ($60,000).
Fraud committed by groups — defined as three or more individuals — resulted in a median loss of $329,000, compared to $75,000 for those working alone.
Over half of fraud cases originated in these five departments:
- Operations (14%)
- Accounting (12%)
- Sales (12%)
- Customer service (9%)
- Executive/upper management (9%)
Responding to and preventing fraud
To mitigate these risks, organizations must remain vigilant, conduct regular training on fraud detection, and implement robust internal controls. By paying attention to red flags and understanding the associated risks, we can better protect our organizations from the damaging effects of occupational fraud.
Organizations that have anti-fraud controls are associated with lower fraud losses and faster fraud detection. More than half the organizational frauds occurred in the absence of internal controls or by an override of existing internal controls. In other words, organizations must not turn on the “autopilot” and take their hands off the wheel.
Following fraud cases, 82% of victim organizations modified their anti-fraud controls by taking one or more of these steps:
- Management review
- Proactive data monitoring/analysis
- Surprise audits
- Fraud training for employees
- Fraud training for managers/executives
Take action
When it comes to fraud prevention, the key lesson for organizations is to take proactive, rather than reactive, measures.
Fraud detection and prevention require a multifaceted approach. Implementing robust internal controls, fostering a culture of integrity, providing regular fraud detection training, and enhancing reporting mechanisms are essential steps.
By taking decisive action and leveraging the insights such as those gained from the ACFE report, your organization can stay ahead of fraud risks, ensuring financial integrity and fostering trust among stakeholders.
KATHERINE BEATY is executive vice president of customer experience for TEZ Technology. She can be reached at katherine@teztechnology.com.
