ACFE 2024: A Report to the Nations

This week I read a summary of the 2024 A Report to the Nations published by the Association of Certified Fraud Examiners (ACFE). While I don’t want you to be hyper focused on the negative, I want you to remain vigilant of potential fraud within your organizations. Let’s explore the findings reported by the ACFE and then discuss another issue that continues to wreak havoc for many organizations.

What were the results? Of the 1,921 cases, 86 percent were related to asset misappropriations and only 5 percent were related to financial statement fraud. Guess which was the costliest type fraud? You guessed it—financial statement fraud caused a median loss of $766,000, while asset misappropriation only had a median loss of $120,000. Before we go further, let’s define these two types of fraud schemes. The ACFE defines financial statement fraud as “...the deliberate misrepresentation of the financial condition of an enterprise accomplished through the intentional misstatement or omission of amounts or disclosures in the financial statements to deceive financial statement users.” Remember that error or fraud is distinguished by whether the actions that led to the financial statement fraud were or were not intentional. Cornell Law School Legal Information Institute defines misappropriation as “the unauthorized, improper or unlawful use of funds or other property for purposes other than that for which intended.” Therefore, in asset misappropriation, assets are used improperly or unlawfully. Three areas of your organization are at risk: Cash Receipts, Disbursements, and Inventory.

To add another level of complexity, the ACFE reported that almost half of the case studies involved corruption (i.e., wrongful acts designed to cause an unfair advantage). The average loss per case totaled $1.7 million and organizations subject to fraud in the case studies lost 5 percent of revenue.

How long did it take to detect the fraud? Occupational fraud usually lasts 12 months before it’s detected and 43 percent of the frauds are detected through tips via telephone, email or web-based. The tips come from a variety of sources: employees, vendors or the public. Think about your fraud prevention program within your school district; Is there a mechanism in which internal and external parties can report fraud? Do you have a hotline and is there an independent party that monitors it? What about controls to prevent fraud? The ACFE reports that more than 50 percent of the occupational frauds occurred due to lack of internal controls or an override of internal controls. After the fraud was discovered, , 83 percent of the victim organizations changed their anti-fraud controls in response to the fraud. These anti-fraud controls included:

• Management review
• Proactive data monitoring/analysis
• Surprise audits
• Fraud training for employees
• Fraud training for managers/executives

Stay tuned for the full report to be released by the end of March 2024.

CHECKS ARE STILL HOT

Yes, checks are still a popular payment method. In the March/April 2024 issue of its Fraud Magazine, the ACFE reported that 11.2 billion checks were written in 2021. Why? Checks remain the most common business to business (B2B) form of payment and many companies still use it to establish direct deposit and canceled checks serve as receipts or evidence that individual businesses were paid by correct parties. So, although there are still billions of checks floating around in our economy, they are still vulnerable to fraud. The ACFE reports that fraudsters can purchase stolen checks through the dark-web marketplace and purchase bank accounts in which to deposit them. Fraudsters can also use nail polish remover to wipe away a signature and then use their computer printer to scan and alter a check. Amazing! While we catch our breath after the anxiety attack, we just had, know that there are low-cost solutions to protect yourselves from check fraud. These efforts include using inks that fully saturate paper, making them difficult to wash and forge.

Also, remember the basic controls over your check stock:

• Keep track of check numbers and check for gaps and excessive voids.
• Sign up for positive pay with your depository institution.
• Limit access to the check stock and keep it secured at all times.
• Limit access to the signature key.

CONCLUSION

Regardless of the fraud, your school district should have internal controls to help prevent and detect fraud. Work with various departments to ensure that they are aware of the risks in their departments and are asking themselves “What Could Go Wrong.”