2024-03-22

Finance, Fraud, and Frustration: Key Findings from the ACFE 2024 Report

Sophia Walker
Sophia Walker
Middle aged man and woman talking, in an office setting

The latest edition of the Association of Certified Fraud Examiners' report highlights some of the most common and damaging financial fraud schemes. How can companies protect themselves?

In an era where headlines about expense fraud regularly jolt the finance world, the ACFE (Association of Certified Fraud Examiners) 2024 Report to the Nations outlined the challenges facing organizations, highlighting the critical issues of fraud and asset misappropriation. Stories of lavish spending on bank cards, fictitious vendor accounts, and manipulated expense reports are not just sensational news items; they signify a more profound issue affecting organizations globally. For finance professionals, these narratives underscore the urgency of identifying and mitigating the underlying risk in their spend programs.

Asset misappropriation is a common theme in the report, showcasing its significant role in fraud. The statistics are eye-opening: the vast majority of fraud cases - 89% of those reported - included some form of asset misappropriation, with many impacted businesses hemorrhaging millions in losses. These aren’t just petty cash thefts; they're elaborate schemes that include falsified expense reports, fake refunds, fictitious expenses, and sophisticated procurement frauds.

Learn more: watch the webinar “Stopping Employee Expense Fraud - Tactics and Tips from Industry Experts

The evolution of these schemes is just as noteworthy. The report highlights a trend towards digital sophistication in fraud, where perpetrators exploit technological vulnerabilities to siphon off assets. For instance, cases of billing schemes have surged, with fraudsters creating phantom suppliers or inflating invoices to divert funds.

These schemes don’t discriminate against the organization's size - of the impacted businesses with under 100 employees, which comprised 21% of all cases, the median loss was $141,000. 

The Role of Spend Control to Prevent Expense Fraud and Invoice Fraud

Spend management isn't just about controlling costs; it's also a critical line of defense against expense fraud/invoice fraud and misuse. This is partly due to how unique spend management is in its place in the finance landscape, as it acts as an extension of so many other business systems and processes. It captures data and activity from the HR system, card programs, the ERP, travel programs, compliance profiles, and much more - combining these data elements into a unified platform built with proactive visibility in mind. The parameters and processes around this activity directly correlate to fraud and misuse exposure. 

According to the ACFE, whether a business takes a passive or active approach to reduce its risk has monumental impacts on both the size of the loss and the length of time it took to find it.  Active approaches, like automated transaction/data monitoring and internal audit exercises, are associated with the quickest fraud detection timelines of six months. Passive detection methods, like relying on confessions, internal tips, or stumbling upon fraud accidentally, are correlated with much longer detection times, as long as 24 months in some cases. The systems and processes a business builds into its spend ecosystem serve as both a deterrent and a detection mechanism, making it harder for fraud and misuse to occur and more accessible for the business to catch this activity.

Challenges and Best Practices in Preventing Financial Fraud

Implementing an effective spend management system has its challenges. Businesses often grapple with outdated processes, decentralized operations, and a lack of integration between different financial systems. These obstacles can create blind spots in financial oversight, frustrating finance professionals and companies vulnerable to asset misappropriation. By implementing robust spend management processes, trusted data sources like corporate cards, and dynamic analytics protocols - companies can identify red flags, like unusual transactions or inconsistent vendor activity, before they balloon into significant financial losses.

According to the ACFE, “Preventing fraud from occurring in the first place is the most cost-effective way to limit fraud losses.” Consider evaluating the rules engine in your spend management platform and your managers' role in your compliance strategy. If management review is the only step for verification of expenses, this lends the program to more risk exposure as managers are inherently not auditors.  The nature of your spending behavior may even warrant augmenting the process with artificial intelligence and machine learning to detect unusual patterns and conduct regular audits of transactions.

In light of these compelling insights from the ACFE 2024 Report to the Nations, the importance of scrutinizing existing spend management processes has never been more evident. This isn't just about adopting new technologies or practices; it's just as much about taking a step back to critically evaluate the current systems and assess whether there is an opportunity to strengthen them.

If you’re worried about the potential impact of expense and invoice fraud on your organization, sign up to watch our webinar, “Stopping Employee Expense Fraud - Tactics and Tips from Industry Experts.” It features insight from industry experts at global analyst firm IDC, as well as financial services leader Raymond James. The webinar gives an overview of how fraud is perpetrated and what process and technology steps organizations can take to minimize their risk. 

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