How Detection Methods Influence Fraud Severity

Continuing from the previous discussion on fraud duration, the Association of Certified Fraud Examiners (ACFE) also analyzed how different detection methods impact the financial severity of fraud schemes. The findings reveal a stark contrast in median losses associated with passive and active detection methods.

Passively detected fraud schemes, tend to result in higher median losses. This is because fraud often remains undetected for longer periods, allowing financial damages to accumulate before discovery.

Conversely, schemes uncovered through active detection methods, generally result in lower median losses. These methods involve proactive measures like intensive account reconciliation and management review, which help catch fraud earlier and prevent larger financial repercussions.

Additionally, the green bars in the report denote detection methods that could be either passive or active, such as tips and external audits. These methods typically result in median losses that fall between those associated with passive and active methods, depending on how they are implemented.

This part of the ACFE’s research emphasizes the importance of proactive fraud detection efforts in minimizing the financial impact of fraud. Organizations that invest in robust detection mechanisms not only reduce the duration but also the severity of fraud, demonstrating the dual benefits of active fraud detection strategies in protecting against financial risks.

Thank you to the ACFE’s Report to the Nations!