6 out of 10 fraud cases are committed by collusion

6 out of 10 fraud cases are committed by collusion

Detecting fraud committed by one person is difficult enough, but this difficulty increases significantly when multiple people collaborate. It’s no surprise that collusion is one of the most difficult types of fraud to detect and causes the most median losses.

Collusion is essentially the secret collaboration between two or more parties, with the intention of deception at the expense of other parties.

The Association of Certified Fraud Examiners (ACFE), through the Report to the Nations 2022, shows that companies suffer losses of more than 5% per year due to fraud. From the study, 6 out of 10 fraud cases, approximately 58%, were committed by collusion.

According to the same report, it was revealed that the more individuals involved in the collision, the greater the losses suffered by the company. For comparison, fraud involving one perpetrator causes a median loss of US$57,000, two perpetrators approximately US$145,000, and three perpetrators or more about US$219,000.

How collusion works

More often than not, first-time perpetrators commit fraud by themselves. However, they may have difficulty due to internal controllers.

It is more conceivable for perpetrators to avoid detection while violating internal controls if they coordinate with other related parties. Thus, collusion stems mostly from the perpetrators’ need to circumvent internal controls.

For instance, collusion between management and staff or a third party may cause an to believe that there is nothing unusual about the evidence or explanation offered, even when the auditing is done properly. Hence, fraud goes undetected.

A study revealed that collusion is typically perpetrated by a group of individuals led by an individual from top management. Being a person in top management enables them to exploit internal control weaknesses and conceal fraud so that the auditor does not discover it.

Prevention and detection

No internal controller is perfect, and not all collusion can be detected and prevented. However, the implementation of the following combination of practices and controls allows perpetrators of collusion to rethink their actions, or for collusion to be detected as early as possible.

  1. Job rotation. By rotating jobs, access and knowledge to various aspects of the company are shared by more than one person, thereby minimizing the risk of misappropriation. In addition, job rotation is also done to supervise old transactions and ensure that employees follow company rules and policies.
  2. Audit trail. Retaining and managing documentation or records of those who made and authorized transactions is essential for tracking if required.
  3. Whistleblowing system. Based on the Report to the Nations 2022, whistleblowing systems are the most effective fraud detection tool. This way, employees who see red flags or those involved in collusion who feel guilty can make reports safely.

Whistleblowing systems allow people to make reports anonymously. For this system to work effectively, it is important for the company to promote its policies to all stakeholders (employees, investors, partners, etc.).

Integrity Asia, as a company with more than two decades of experience in the compliance field, has extensive experience in providing whistleblowing services for clients from various business backgrounds.

Through the Canary Whistleblowing System, Integrity provides a combination of multiple reporting channels centralized on the website application, thereby increasing clients’ accessibility to reports, while ensuring the anonymity of the reporter. For more information about the Canary Whistleblowing System, please do not hesitate to contact us.



Photo by Freepik

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