While it’s not surprising that the vast majority of experts say the economic crunch has led to an increase in occupational fraud, companies may not be doing enough to address their increased risk, according to a survey of anti-fraud professionals.

More than half (55 percent) of Certified Fraud Examiners say the number of frauds increased during the past year when compared to the level of fraud they’ve investigated or observed in years prior. In addition, 49 percent observed an increase in the dollar amount lost to fraud during the same period.

That’s according to a survey of 507 CFEs conducted in February and March by the Austin, Texas-based Association of Certified Fraud Examiners. The survey results appear in a new report titled “Occupational Fraud: A Study of the Impact of an Economic Recession.”

Experts also expect fraud levels to continue rising. Some 88 percent of the CFEs polled anticipate a slight or significant increase in fraudulent activity during the next 12 months, while only 2 percent expect any decline.

Even worse, the survey shows layoffs are leaving holes in some companies’ internal control systems, and few companies appear to be devoting more resources to antifraud controls to combat their risks.

Nearly 60 percent of 261 CFEs polled who work as in-house fraud examiners report that their companies experienced layoffs during the past year. Among them, almost 35 percent say their company eliminated some controls. Another 44 percent said the layoffs had no effect on controls, while only 3 percent said their company had increased controls.

“While everybody could guess in hard economic times fraud was going to go up, what struck me as unusual about the findings was that, despite the number of respondents who say fraud has increased, most don’t intend to spend more on fraud prevention,” says ACFE president James Ratley. “To me, that’s wishful thinking.”

More than half (59 percent) of in-house fraud examiners say their employer maintained their current level of spending during the past year on preventive controls, such as employee support programs, fraud training for employees and managers, and segregation of duties, while just 17 percent increased spending and roughly 12 percent decreased spending on preventive controls.

Meanwhile, 59 percent say their firms kept the same level of spending on detective controls, such as fraud hotlines, internal audit departments, and independent audits, during the last year, while 22 percent increased spending and 7 percent decreased spending on detective controls.

In a high-risk fraud environment—which some companies may have created inadvertently through layoffs and other cuts—they need to increase both their fraud prevention and their detection techniques, Ratley says.

Of the two, Ratley says prevention is the bigger issue. “It’s such an uncomfortable topic, people are hesitant to address it.”

Meanwhile, employees appear to be companies’ greatest threat. More than 48 percent said employee embezzlement has been on the rise during the past year. Additionally, 37 percent say frauds by unrelated third parties—such as identity theft, con schemes, and securities fraud—have increased and roughly 20 percent indicate frauds by vendors, financial statement fraud, and corruption have increased. About 12 percent say financial statement fraud increased, and 12 percent saw an uptick in corruption.

Of those polled, 70 percent expect employee theft to rise in the coming year. More than half (56 percent) think fraud by unrelated third parties will increase, and 41 percent believe vendor fraud will be on the rise. More than a third (36 percent) expect a rise in financial statement fraud, while 26 percent think corruption will rise.

Compliance Week will provide readers with full details of the survey findings—along with tips on what companies can do to mitigate their risks—in an upcoming edition.

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