Cutting fraud losses in Canadian organizations

Abstract

Purpose – The purpose of this paper is to analyze the effect of various internal controls (i.e. hotlines, regular ethics (fraud) training, surprise audits, internal and external audits and background checks) on reducing occupational fraud losses by victim organizations. Design/methodology/approach – The paper, based on data from an occupational fraud report co-authored by the Association of Certified Fraud Examiners (ACFE) and Peltier-Rivest (2007), uses a multivariate regression analysis to analyze the effect of various internal controls on preventing fraud losses. Findings – The authors’ analyses demonstrate that hotlines, regular ethics (fraud) training, surprise audits and internal audits all decrease fraud losses when used separately. However, hotlines and surprise audits are the only statistically significant controls when controlling for the potential correlation among all internal controls. Hotlines are associated with a reduction of 54 per cent in median fraud losses, while surprise audits cut median losses by 69 per cent. Research limitations/implications – This study contributes to academia and the anti-fraud profession by assessing the statistical effect of six internal controls on preventing fraud losses, while controlling for the potential correlation among these controls. Practical implications – This study discusses the relative benefits (loss savings) of various internal controls to organizations, governments, managers and anti-fraud professionals. This information may help determine investment priorities in the context of scarce resources. Originality/value – This paper is based on proprietary data owned by the ACFE and is the first to analyze the statistical significance of various internal controls on the reduction of fraud losses in Canada.