Computer Crime Research Center

E&Y Study Reveals Fraud Detection and Prevention Trends

Whistleblowing and staff training are more acceptable ways to detect and deter fraud than in prior years, as companies around the world react corporate scandals and poor accounting practices.

Ernst & Young's eighth global study on corporate fraud, released Monday, revealed this and other fraud trends. The biennial study, which surveyed 100 global organizations in more than seven major industry sectors over the past several months, also revealed that 47 percent of leading, global organizations surveyed were significantly affected by fraud in the past year.

Eighty-five (85) percent of the worst frauds reported in the survey tended to be committed by those on the company payroll. Notably, over half of company insiders reported to have been perpetrators of fraud were from the management level, up from a third in previous surveys. Interestingly, while these managers may have been with their organizations for a number of years, half had spent less than a year in a management position.

When asked which factors were most likely to prevent or detect fraud, internal controls, management review, and internal audit processes were cited as the most useful means of prevention. Of those surveyed, 60 percent reported they have trained staff on corporate fraud, a sharp increase from 30 percent two years ago. Respondents also said corporate whistleblowers are more accepted as a way of detecting fraud than in prior years. And when investigating workplace fraud, one in five organizations referred to forensic services -- significantly higher than in previous years, with an 88 percent satisfaction rating.

The study also found that over half of those organizations surveyed have established guidelines on dealing with fraud-related behavior, including codes of conduct, governance codes, response plans and anti-fraud policies.

"Corporate scandals ripped from today's headlines are forcing executive management worldwide to take a closer look at the policies and procedures they have in place to control and mitigate incidents of fraud," said David L. Stulb, Americas Director of Ernst & Young's North American Global Investigative Services group.

Other findings:
- Companies worry about all types of fraud, but asset misappropriation is the most worrisome to nearly two-thirds of organizations surveyed. Other concerns cited included computer crime and corruption, and financial statement fraud.
- When investigating workplace fraud, one in five organizations referred to forensic services -- significantly higher than in previous years. Of respondents who had used a forensic auditing team, 88 percent expressed satisfaction with the investigation.
- Ninety-five percent of fraud investigations did not use electronic evidence techniques such as disk drive images, emails and access logs.
- Organizations are recovering a greater proportion of their financial losses than in previous years, rising from 29 percent to 51 percent. However, more of that recovery was said to be coming from insurers, banks and suppliers. Recoveries from perpetrators remained low at about 25 percent.

According to the study, 13 percent of the worst losses to fraud were over $1 million USD.


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