By Leslie Kim
Many moons ago I found myself standing in front of a very large just-after-breakfast audience as an opening keynote speaker. For those of you who do public/industry speaking, you know that the just-fed-morning-crowd is among the toughest audience because all they really want to do is go back to bed. Listening to somebody wax prosaic about fraud is definitely NOT on their top ten list of things to do.
My own speaking style is one of taking my cues from my audience. I rarely if ever take crib notes up to the podium. In fact, I rarely if ever have a clue what I am going to say until it pops out of my mouth. (No power point presentations for this girl!) And so it was that I found myself face to face with about 500 of my peers who'd each eaten one too many sweet rolls and was having trouble keeping their eyes open on that particular morning. I tried to "read' my audience to start the flood of words ... and got nothing but "gimme a bed."
Experiential Learning (EL) techniques rely heavily upon the visual, and so I decided to try to wake them up by making them think. In the biggest voice that I could muster, I said, "How much does fraud cost the American economy each year? Do you KNOW that if I were to line dollar bills up, one after another, that I could go from this podium TO THE MOON (hmmm ... eyes were starting to open) AND BACK (now their chins were off of their chests) TWENTY-EIGHT TIMES (Ha, I had em!).
Big admission here.
At the time I said it, I simply pulled that inflammatory statement out of my ear in order to grab their attention. And it worked wonderfully. They listened to the rest of the presentation and nobody took a morning nap. Then, less than two weeks after I had blurted that "fact" out, I saw it as part of somebody's article ... IN PRINT. Ohmygawd, what had I done?
In order to attempt to undo it, I decided to see if I could possibly justify that visual number that I had so carelessly thrown out to 500 people. I took a dollar bill out of my purse and measured it. Then I went to www.google.com and figured out the "average" distance to the moon from the geographic locale that I had been speaking from. (I say average because the distance will vary from day to day as neither the earth nor the moon stays still.) Next I grabbed my handy dandy calculator and began plugging in numbers.
Let's see, 385,000 km is about 240,000 miles, so a round trip would be 480,000 miles.
Twenty-eight round trips would be 13,440,000 miles Give or take, of course.
A dollar bill is approximately 5.5 inches long.
A mile is 63,360 inches.
It takes 11,520 dollar bills to stretch a mile.
So QUICK, everyone, how much fraud does it take to make my statement accurate?
The answer is that every billion dollars gets about 87,000 miles, so those 28 trips need only 154.8 billion.
While insurance fraud, specifically, does not come anywhere near this number, fraud in general far surpasses it! Defining fraud in its simplest form, "Gain Through Misrepresentation," we could easily add on many more lunar trips.
Just as a for instance, consider this report from (Hi, Joe!) the Association of Certified Fraud Examiners:
US organizations lose an estimated seven percent of their annual revenues to fraud by accountants, managers and other employees, according to a survey of fraud examiners who investigated cases between January 2006 and February 2008.
The median loss caused by the occupational frauds in this study was $175,000. More than one-quarter of frauds involved losses of at least $1 million.
The seven percent figure translates to approximately $994 billion in fraud losses.
The study also found that schemes frequently continue for years before they are detected. The typical fraud in the study lasted two years from the time it began until the time it was caught by the victim organization.
The Association of Certified Fraud Examiners (ACFE) published the results of the survey in its 2008 Report to the Nation on Occupational Fraud & Abuse.
The benchmarking data is compiled from 959 cases of occupational fraud that were investigated between January 2006 and February 2008.
The report also found that:
Frauds were most often committed by the accounting department or upper management, and most fraudsters were first-time offenders. Only seven percent of fraud perpetrators in the study had prior convictions and only 12 percent had been previously terminated by an employer for fraud-related conduct.
Occupational frauds are much more likely to be detected by a tip than by audits, controls or other means.
Small businesses are especially vulnerable to occupational fraud.
Seventy-eight percent of victim organizations modified their antifraud controls after discovering that they had been defrauded.
The report also details findings such as how organizations were impacted based upon industry, how the implementation of antifraud controls affected exposure to fraud, and the most common behavioral traits observed among fraud perpetrators. A copy is available on the ACFE's Web site.
Source: ACFE www.ACFE.com
Remember, Organizational Fraud is just one wee slice of the overall fraud pie, yet the numbers from this minuscule piece are staggering. When we add in other categories (e.g., real estate fraud, mortgage lending fraud, product counterfeiting, contractor fraud, telemarketing fraud, Internet fraud, credit card fraud, yada, yada, yada) we had better start building bigger spaceships that can travel longer distances.
Quantifying the cost of fraud requires that we first qualify exactly what it is that we are trying to measure. Since the overall fraud-fighting industry has never bothered to do that, how can we possibly wake up our audience -- the American public -- with eye-opening numbers? The answer is ... we can't.; at least not with any industry wide credibility.
It is a less difficult project for The Insurance Industry to qualify what fraud IS so that they can then quantify how much it costs in language that the buying public can understand. By combining P&C with Life, health care, disability (all insurance products), the insurance industry could easily support "to the moon and back" in an advertising campaign.
Just as we absorb best from Experiential Learning, so does the public. There needs to be an example -- a visual -- of exactly how much money is being stolen from the pocketbooks of honest Americans via insurance schemes, scams and flimflams.
Will it ever happen? Or is it possible that the insurance industry does not want it to happen?
© Copyright 2008 The John Cooke Fraud Report