Managing Fraud Risk: A Practical Guide for Directors and Managers

Answers to the Quiz

Fraud Awareness Quiz – Question 2

What is fraud and what percentage of annual turnover are losses from fraud estimated to cost a typical organisation each year? Give three practices or types of behaviour that you consider to be examples of fraud.

This question asks delegates to consider their own understanding of what the word fraud actually means in practice, as well as to share their perceptions of the extent of fraud in terms of the most straightforward and obvious measure of the risk, that of financial loss. The second part of the question has proved to be much easier for them to answer than the first and we will look at this aspect of the question now.

The people who come on my courses have consistently shown a very good awareness of the financial impact of fraud over the years. The majority of their answers fall within the range 2% to 5% of turnover. This is absolutely in line with much of the research on the extent of losses from fraud. As an example, the Association of Certified Fraud Examiners (“ACFE”)¹ summarises one of the key findings of its 2010 Report to the Nations on Occupational Fraud and Abuse (“RTTNs”) very succinctly as follows: “Survey participants estimated that the typical organisation loses 5% of its annual revenue to fraud.” Occasionally, delegates will come up with different answers, almost always giving higher percentages rather than lower – 12% of turnover, sometimes as high as 15%. These estimates are simply too high and represent ...