Profiling a Fraudster
By John Dubiel, CPA, CFF, CFE, CVA
The old saying goes, "you can't judge a book by its cover." However, in the world of fraud, this may not be the case. The Association of Certified Fraud Examiners (ACFE) recently released their 2010 Report to the Nations on Occupational Fraud & Abuse (the Report). The information contained in the Report is based on data compiled from the study of 1,843 cases of occupational fraud that were reported by the Certified Fraud Examiners (CFE) who investigated the cases. Although the Report provides a tremendous amount of information it also provides a hidden profile of a fraudster if you look between the lines. Please keep in mind, that although an employee may possess one or more of the following traits or characteristics of a fraudster, that is not the only reason to suspect them of committing fraud. All other considerations have to be taken into account along with the evidence implicating the employee.
The Report revealed these common traits or characteristics of an average fraudster:
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They are likely to be male aged 31-45 years-old. Males are 33% more likely to commit fraud as their female colleagues. This can be broken down even further in level of authority in the organization. At the employee level, the amount of fraud committed is pretty much 50/50. However, as you move up the level of authority in an organization, men start pulling away. At the manager/senior executive level, men are approximately 25% more likley to commit fraud and approximately 40% more likely than females at the owner/top-end executive level. Although it sounds chauvinistic, the Report data indicated that these highler level positions were dominated by males. The cases indicated that the median loss associated with males, $232, 000 was over double the median loss associated with females $100,00.
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A fraudster is more than likely to be a "loner." In two-thirds of the fraud schemes covered in the Report, the fraudster acted alone.
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A majority of the fraudsters, 55%, attended college or graudated college. Approximately 14% have obtained a post-graduate degree. Incidentally, the Report findings demonstrated that the median loss of fraud increases as the level of education increases.
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The Report found that over half the employees who committed fraud had over 5 years experience with their organizations. Again, the median loss increases as the number of years with an employer increases. The Report found that the median loss for employees with less than one year of tenure rose from $47,000 to $289,000 for employees that had a tenure of ten years or more.
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The typical fraudster is an employee living beyond their means, struggles financially or is known to have an addictive personality. The Report found that employees that committed fraud were living beyond their means in 43% of the cases and experiencing financial difficulties in 36% of the cases.
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An employee who commits fraud is usally working in the following departments of an organization: accounting, operations, sales, customer service, upper management and purchasing. The Report found that those six departments accounted for 80% of the cases examined in the Report. The most common department employees were employed in the accounting department (22%) for obvious reason. Employees working in the accounting department have easier access to records and documents to conceal or perpetrate a fraud.
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Look for a "wheeler-dealer" attitude or a "control freak." A fraudster will usually have a high confidence level.
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93% of employees who commit fraud will have no prior criminal record or have never been convicted previously of a fraud-related offense. This is due to the fact that many employers are too embarrassed to prosecute employees or don't want the publicity of an arrest of an employee who handles money or had access to someone's personal information. This is especially true in the not-for-profit sector where organizations are dependent on pledges or contributions from the public. Think of the impact on contributions if the public discovered that a portion of their contribution was stolen by an employee and never had a chance to relieve the cause they intended it for. In addition, many employers believe that the personal and business costs of prosecution are not worth the benefits received or money recovered. In many incidences, the employer only recovers a small portion of the original amounts stolen, over a long period of time.
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Look for the following specific characteristics or problems:
- Divorce or family problems
- Drug or gambling addictions
- Legal problems
- Defensiveness
- Irritability and suspiciousness
- Refusal to take vacations or sick days
- Constant complaining about inadquate pay
- Unusual close relationship with a vendor or customer of the company
- Constantly complaining of being passed over for promotions or about employees in supervisory positions in the organization
During my personal experiences with fraud investigations, I have noted that in a significant majority of my cases, the employee has almost always been a trusted employee, in two cases, owner's family members. These employees are usually employed by small companies with limited resources to hire an entire accounting department so the owner puts all of his/her trust in one specific employee. Under the right social pressures or circumstances, those employees have taken advantage of that trust instilled i them by their employer.
As stated earlier, the presence of these signs does not in and of itself signify that an emplioyee is committing fraud or will in the future. These are just the common traits and characteristics of the average fraudster identified in the Report to the Nations on Occupational Fraud and Abuse.