Fraud at the Office: The Likely Suspects

August 13, 2013

Who commits occupational fraud? There are patterns and telltale signs.

That’s according to the Association of Certified Fraud Examiners, which analyzed 1,388 cases of reported fraud worldwide for its latest biannual Report to the Nations.

Most employees who commit fraud have clean employment histories – 87 percent had never been charged or convicted of a fraud-related offense.

But in 81 percent of cases, the dishonest employee displayed one, sometimes multiple, red flags: 

• Living beyond means (35.5 percent)
• Experiencing financial difficulties (27 percent)
• Seeming unusually close to vendors or customers (19 percent)
• Exhibiting excessive control issues (18 percent)
• Having divorce/family problems (15 percent)
• Demonstrating a wheeler-dealer attitude (15 percent)
• Displaying an irritable, suspicious, defensive attitude (12.5 percent)
• Suffering from addiction problems (8.5 percent)
• Having past employment problems (8 percent)
• Complaining about salary (8 percent)
• Refusing to take vacations (6.5 percent)
• Feeling excessive pressure from management (6.5 percent)
• Having past legal problems (5 percent)
• Complaining about lack of authority (5 percent)
• Feeling excessive pressure to succeed from others (4.5 percent)
• Going through unstable life circumstances (4 percent)

In the United States, most employee fraud is committed in one of six departments, according to the study:

• Accounting (26 percent)
• Operations (18 percent)
• Executive/upper management (12 percent)
• Sales (11 percent)
• Customer service (7 percent)
• Purchasing (3 percent)

Most people committing fraud at the workplace are non-management employees (42 percent of cases), followed by managers (38 percent) and owner/executives (18 percent).

But the amount stolen is in the reverse order. When top executives commit fraud, they steal a lot more than their counterparts who are lower on the totem pole.

The median loss to the company when a top dog stole was a whopping $573,000. When the perpetrator was a manager, the median loss was $180,000. And when the wrongdoer was a regular employee, median loss was $60,000 – one-third of a manager’s and one-tenth of a top executive’s.

Fraud committed at higher levels also took longer to detect – typically at least two years – and twice as long as regular employees. That implies dishonest bosses are typically in a better position to override controls or conceal their misconduct. And lower-level employees may be less likely to lodge a complaint against those with more authority.

Losses in the 753 cases in the United States were lower than other countries, particularly in the highest position – a median $373,000 for top executives, $150,000 for managers and $50,000 for employees. Latin America and the Caribbean had highest losses, with $10 million the median amount stolen by top executives. Asia’s median was $4 million.

Fraud examiners theorized that the reason for the lower amounts among U.S. executives could be that American (and Canadian) executives tended to be investigated for less costly executive malfeasance than their counterparts in other regions.

Two out of three fraud perpetrators worldwide are male, but that percentage varies according to region. In Europe, Asia, Africa and South America, more than three out of four are male.

But it is much closer in the United States, with 55 percent of the guilty parties being male, and 45 percent female. In Canada, female felons outnumber the men, 52 to 48 percent.

And again, the amount stolen varies greatly, with men stealing more than twice as much as women at every level – an average $200,000 to $91,000.

The majority of employees committing fraud were between the ages of 31 and 50, but the amount stolen tended to rise with age. Perpetrators aged 50-55 must have had retirement on their minds because they stole two-and-a-half times more than any other age group, a median of $600,000.

As far as tenure with the organization, 42 percent of employees committing fraud had worked with the company between one and five years, followed by 27 percent who had worked there six to 10 years, and 25 percent who had logged more than 10 years. The amount stolen also rose considerably with tenure.

Educationally, the majority (54 percent) of those committing fraud against their employers had college degrees, with the amount of losses rising in direct correlation to educational level: a median $300,000 for postgraduate degrees and $200,000 for bachelor’s degrees. Those with high school diplomas or less who committed fraud (25 percent) caused a median loss of $75,000.

The results from the most recent study closely follow patterns from previous years.