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The typical organization loses an estimated 5% of its annual revenues to occupational fraud. The median loss caused by the occupational fraud cases in our study was $140,000. More than one-fifth of these cases caused losses of at least $1 million.
Median loss for a business is reduced by 75.4% if they have a hotline and pay cash rewards. 44.4% of the reduction comes from a hotline and 31.0% comes from rewards for whistleblowers. The majority of tips reporting fraud come from employees of the victim organization.
“The issue is no longer whether to establish a program of anonymous reporting, but how?”
- Lynn Clements, PhD, Florida Southern College, published expert on whistleblower issues.
2012 Report to the Nations on Occupational Fraud & Abuse
In our 2012 study 43.3% of theft was detected through a tip. Tips represented the most common detection method for each type of scheme. Employees ranked highest for submitting tips at 50.9 %. 12.4% came from anonymous tips. Customers submitted 22.1% of the tips. Vendors submitted 9.0% of the tips, and 15.4% of the tips came from other sources.
Since our 2002 study to date, tips were by far the most common detection method, catching nearly three times as many frauds as any other form of detection. The ability to report fraud anonymously is key because employees often fear making reports due to threats of retaliation from superiors or negative reactions from their peers. While tips have consistently been the most common way to detect fraud, the impact of tips is, if anything, understated by the fact that so many organizations fail to implement fraud reporting systems.
Organizations that have a tip line tend to detect frauds 12 months earlier than those who do not. If an organization has a tip line and pays a reward for whistleblowers they tend to detect fraud 25 months earlier.
In cases involving fraud by a manager or executive, confidentiality would more likely be a consideration of the whistleblower. The median loss reported from employee theft was $60,000 versus $180,000 by management and $573,000 by executives with better access to resources. Tips were the most commonly cited detection method in cases perpetrated by executives. This data indicates that hotlines are a very effective fraud detection tool.