How Much Does
Fraud Cost Organizations?

How Much Does Fraud Cost Organizations?

Internal fraud within organizations is an illicit activity resulting from the misappropriation of resources by a member of the entity. Essentially, it involves using one's job position to manipulate data, perform false transactions, or misappropriate assets for personal gain.

Organizational fraud can be committed by a single employee or involve cases where several members of an organization (from the same or different departments) conspire to commit fraud. This type of behavior is related to fraud networks, where both internal and external individuals can be implicated, including suppliers, customers, or anyone connected to a member of the organization. Additionally, there are cases where we can have a mixed fraud network, involving both internal and external members in the same fraudulent network.

According to the 2022 report from the Association of Certified Fraud Examiners (ACFE), headquartered in the United States, the cost of fraud represents approximately 5% of organizations' revenues. While this figure is already alarming, it has an aggravating factor: in most cases, it does not show up on the organization's financial statements, making it an undetectable factor. This figure could easily be equivalent to 10% to 30% of a period's profits, reducing competitiveness and jeopardizing the finances of any organization.

Such illicit activities occur in both the private and public sectors. In the private sector, it implies lower profitability and investment, resulting in fewer jobs or lower job quality. In the public sector, it can manifest as reduced public investment, lower service quality for citizens, reduced investment in education, health, and infrastructure. The cost of fraud certainly encumbers our societies and future generations.

Furthermore, the ACFE report estimates that the average time to detect fraud in an organization is 18 months. However, in entities that implement an ethical reporting channel, this time is reduced to 12 months. This can be interpreted as an immediate 33% reduction in the cost of fraud due to the implementation of a reporting channel.

However, it is not enough to have a reporting channel; today, it is crucial to implement it with the right digital tools. Additionally, if implemented according to international standards (ISO 37001, ISO 37002) or complemented with a corporate anti-fraud program, the cost of fraud will continue to decrease.

Do you know how much fraud costs your organization? At SHOGUN, we provide guidance to help you mitigate this cost of fraud with the best technological industry practices, in line with international regulations and standards.

Author: André Barrantes
CEO and founder of SHOGUN Monitor. He is an expert in digital training development and specialized technology in Operational Fraud Prevention and corruption, with clients in over 20 countries in America and Europe.