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Profile of a fraudster

stephanie-woodWe are all aware of the seven key questions that help us understand a situation and the context of a situation: the who, what, why, when, where, how, and how much? When applying these key questions to fraud-related stories, it seems that many of the articles we read today focus on the what, why, when, where, how and, most often, the how much.

While these details are pertinent to the story, it is also interesting to take a deeper look at the “who.” It is becoming increasingly important for employers to have an understanding of the warning signs, and understand who commits fraud just as much as they should understand how it is perpetrated and what controls should be in place to mitigate the risk.

workforce-column-sept-2017The Association of Certified Fraud Examiners (ACFE) 2016 Report to the Nations on Occupational Fraud and Abuse analyzes actual case information provided by Certified Fraud Examiners and presents statistical data on the cost of occupational fraud, the perpetrators, the victims and the various methods used to commit crimes. Included in the chapter on perpetrators is information related to their position, tenure, department, gender, age, education level, employment history and whether or not the individual acted alone or colluded with others. The report is based on an analysis of 2,410 cases that were investigated between January 2015 and October 2015.

Using the valuable information provided in this report, we can gain a better understanding of the types of individuals committing crimes, which will ultimately assist employers in their continued fight against fraud in the workplace.

What does a fraudster look like?

Using the information presented in the ACFE’s Report to the Nations, the following is a profile of a perpetrator, split out into different categories:

Position: Consistent with previous reports, the individuals most likely to commit fraud were in the “employee and manager” positions. Of the cases analyzed, 40.9 percent were employees and 36.8 percent were managers. The other significant category under position was the owner/executive, which made up 18.9 percent of the crimes.

Tenure: The report also analyzed data on how long the perpetrators were employed with an organization. In doing so, it was noted that losses were more significant the longer an individual worked for the organization. Employees with 1-5 years committed the most frauds at 42.4 percent. Those with 6-10 years at the organization came in at 26.5 percent, and those with more than 10 years were at 22.9 percent. This seems reasonable as one would assume the longer an employee is with an organization, the more responsibility they get, which in turn may give them more opportunity to commit the fraud.

Department: According to the report, approximately 76 percent of frauds came from seven key departments: accounting, operations, sales, executive/upper management, customer service, purchasing and finance. Of these, the accounting department had the most frauds at 16.6 percent. Coming in second, the Operations department made up 14.9 percent of the frauds, and in third, the Sales department was at 12.4 percent.

Gender: Of the 2,410 cases reviewed, 69 percent of fraud perpetrators were male and 31 percent were female. The report noted that these  percentages were consistent with previous studies which have found females to be responsible for between 30 percent-35 percent of frauds in every study since they began collecting data in 1996. Some of this distribution was attributed to the fact that men still make up a larger portion of the workforce than women, so it might be expected that their  percentage would be higher.

Age: More than half (55 percent) of frauds were committed by individuals between the ages of 31 and 45. Less than 3 percent of crimes were committed by people over the age of 60.

Education Level: Coming in at 47.3 percent, perpetrators with a college degree were much more likely to commit fraud than someone without a degree. This category could be influenced by the fact that someone with a higher education level will most likely have a higher level of authority, and have the opportunity to commit fraud more than someone who has a high school level of education, and much less authority and access within the organization.

Acting Alone or Colluding with Others: Are those committing fraud most likely to act alone or in collusion with others? The ACFE reported that 52.9 percent of cases involved only one perpetrator, which is down slightly from the 2014 report (54.9 percent). The report indicated that this decrease could be due to better anti-fraud controls related to separation of duties. However, if multiple individuals act together, they could still circumvent the system to commit the fraud.

Criminal History: The majority of occupational fraudsters are first time offenders. Only 5 percent of those committing occupational fraud were convicted of a prior fraud-related offense, and only 8 percent were previously fired for fraud-related conduct by a previous employer. These findings have been consistent since the ACFE’s first report in 1996.

Employment History: Approximately 83 percent of individuals committing fraud had never been terminated or punished prior to the crimes included in the ACFE’s report. Some of this could be due to the fact that some cases are never referred to law enforcement, offenders not receiving punishment, or entering into settlement agreements that are confidential. Therefore, this figure could be slightly inflated and the actual number of individuals with a history is higher.

Behavioral Red Flags

In addition to the specific demographic information identified in the Report, the ACFE also explored behavioral red flags that are common in fraud perpetrators. According to the ACFE, the following are the six most common red flags:

Living beyond means;

Financial difficulties;

Unusually close association with a vendor or customer;

Wheeler-dealer attitude;

Control issues, unwilling to share duties; and

Divorce/family issues.

These six have been the most common red flags since this data was first tracked in 2008. The ACFE found that approximately 79 percent of perpetrators exhibited at least one of these six during their employment.

What can employers do?

While it is important to learn of the what, why, when, where, how and how much, it is also necessary to understand the “who” behind fraud. Employers can use a combination of the demographic information above and the common red flags to be more adept at identifying potential risks. The more aware organizations are of the risks, the better equipped they will be to implement the proper controls to mitigate them.

Stephanie Wood, CPA, CIA, CFE is a manager with EFP Rotenberg LLP, Certified Public Accountants and Business Consultants.


About Stephanie Wood