Industry Fraud Index: Which Industries Are Most at Risk?;

Even with the most successful fraud detection procedures in place, fraud schemes can affect any business, regardless of size and global location. Implementing fraud detection policies and anti-fraud procedures can be difficult without knowing which areas of the organization to target.

We analyzed the most recent release of the Association of Certified Fraud Examiners’ Report to the Nations and compared the figures to the ACFE Report from four years ago, to discover which industries have suffered the largest increase in fraud.

We also looked into the most common type of fraud affecting each industry, and the average financial losses faced by businesses that fall victim to these schemes.

Industries Where Fraud Increased the Most

The 2020 ACFE Report to the Nations analyzed around 2,500 cases of fraud across a range of industries. When comparing the number of cases per industry in 2020 to the report from 2016, we can see which industries have witnessed the largest increase in the number of fraud cases.

While this does not necessarily mean that more fraud occurs in these sectors, since it could indicate these industries employ more Certified Fraud Examiners than others, it can help to indicate which sectors are more at risk of being affected.

increase in fraudulent activity

1. Mining: 30.0% more cases

In the last four years, the mining industry has seen the largest increase in the number of reported cases of fraud out of all the industries we examined.

Fraud in the mining industry can take many forms, from inventory theft to improper asset valuations. There are four main types of fraud in mining: environmental, forestry, occupational and reserves or resources reporting. In the most recent ACFE report, the mining industry also suffered the largest median loss of all industries, at $475,000. Despite the increase in reported fraud cases and the large median financial loss, the median financial loss in mining fraud has decreased in the last four years – by 5%.

2. Real estate: 26.8% more cases

Real estate is one of the industries with the biggest increase in the number of reported fraud cases over the last few years. The industry has witnessed a 26.8% increase in cases of fraud in four years. The highest proportion of fraud cases are seen in corruption, including bribery and extortion, and skimming.

The median loss of real estate fraud has also increased in the last four years by 27%, up to $254,000 from $200,000.

3. Telecommunications: 8.1% increase in the number of cases

Fraud in the telecommunications industry is rising faster than in most sectors, with an 8.1% increase in fraud cases over the last four years. Telecommunications fraud involves anything from fixed line fraud to subscription fraud and SMS phishing. 56% of all fraud cases in telecommunications are classed as corruption, while 31% of cases are non cash.

Telecommunications is also one of the industries seeing an increase in the median loss from fraud, rising by 28.9% in the last four years to $250,000.

Industries Where Financial Loss to Fraud Increased the Most

industry biggest fraud losses

1. Healthcare: 66.7% increase in median loss

Healthcare is the sector with the biggest increase in median loss from fraud over recent years. Healthcare fraud can involve fraud committed by healthcare providers, patients, or anyone who files dishonest healthcare claims in order to gain a profit.

The median loss from fraud in healthcare is $200,000 per case, up 66.7% from four years ago, when the median loss was $120,000. The number of reported instances of fraud in healthcare has also increased from four years ago by 3.5%.

2. Utilities: 59.8% increase in median loss

In the utility sector, the median loss in fraud cases has increased from $102,000 to $163,000 in the last four years, a rise of 59.8%.

Involving cases of tampering with meters, using others’ information to order utilities and even SMS phishing scams, utility fraud has seen one of the largest increases in financial loss.

However, the number of fraud cases reported in the utilities industry has decreased in the last four years by 50%, from 40 cases to 20 cases.

While this could be an indicator that the risk of fraud is reducing in the utility sector, it could also suggest a reduction in the number of employed Certified Fraud Examiners in the industry.

3. Services (other): 50.0% increase in median loss

The services sector, excluding professional services, has seen one of the biggest increases in financial loss from fraud over the last few years. The median loss per case due to fraud is $150,000, a 50% increase from four years ago when the median loss per case was $100,000.

Although the financial losses in the industry involving sales, security, design and other professions have increased, the number of fraud cases reported in the services industry has decreased in the same space of time, by 57.1%.

However, this does not necessarily show the services industry is becoming less at risk of falling victim to fraud cases. The decrease could be indicative of a decline in the amount of Certified Fraud Examiners working in the services industry.

The Most Common Type of Occupational Fraud Scheme in Each Industry

The table below shows the most common type of occupational fraud affecting each major sector, for those with at least 50 reported fraud cases, in the 2020 ACFE Report to the Nations. 

Identifying the types of fraud schemes affecting each industry at a local level can be tricky. Knowing the most common types of fraud affecting an industry is crucial in fraud prevention, allowing organizations to learn which departments are most effective to incorporate anti-fraud controls into and which areas of the business are most vulnerable.

common types of occupational fraud schemes

1. Corruption: Most common occupational fraud scheme in 14 industries

Corruption fraud schemes are the most common type of occupational fraud in almost every industry in the study, accounting for up to 66% of cases in some sectors. Corruption schemes are most common when the owner of an organization, or an executive or employee, abuses their position of power to generate personal gain.

Corruption fraud schemes include bribery, paying “gratuities” to close sales, kickbacks from third parties to employees in return for industry benefits, and making false health insurance claims by colluding with medical providers.

Most businesses today have a form of anti-corruption or anti-bribery policy in place, although the implementation of these policies is crucial. Knowing the areas of the business most affected by fraud can help when formulating an implementation strategy for anti-fraud measures.

The 2020 ACFE Report to the Nations found that operations, accounting and executive/upper management are the most common departments for fraud perpetrators, although this varies by business size, location and industry type.

2. Billing: Most common occupational fraud scheme in two industries

Billing fraud, or invoice fraud, is the second most common type of fraud scheme faced by businesses in the report. Billing fraud primarily affects the professional services industry, including the accounting, legal and finance sectors, and education.

Billing fraud usually involves an individual party sending invoices to a company to request payment for goods or services.

The fraudulent party may claim to be from a legitimate supplier of your company or even an employee, and some perpetrators even learn the details of when regular payments to suppliers are due, to add perceived legitimacy to the scheme.

Invoice fraud comes in many forms. It can be avoided by spreading awareness and introducing certain controls into the process, such as contacting suppliers in the instance of any invoice queries, checking the payment details of the supplier with your own records, and refraining from immediately transferring sums of money due to pressure.

occupational fraud

Methodology

We wanted to discover the industries facing fraud the most, and therefore sourced information on fraud from the ACFE Report to the Nations 2020 and the ACFE Report to the Nations 2016.

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Author avatar
Bence Jendruszak
COO

Bence is the co-founder and COO of SEON whose vision is to create a safer online environment for merchants in high risk verticals.


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