The latest on occupational fraud: Who the perps are

Occupational fraud is an unfortunate reality for just about every employer, nonprofit organization or otherwise. But you might be able to reduce the risk of costly losses if you understand some of the common traits of fraud perpetrators. The 2016 Report to the Nations on Occupational Fraud and Abuse from the Association of Certified Fraud Examiners ("ACFE") provides some useful insights on these characteristics.

How old are the perpetrators?

The ACFE found that 55% of the fraudsters in its study were between the ages of 31 and 45, and the size of the losses generally rose with the age of the perpetrator. It identified a “line of demarcation” around the age of 40: In all age ranges at or below that age, the highest median loss was $100,000, while the median loss in the ranges above age 40 was $250,000 or higher.

Fraud losses also tend to increase the longer a fraudster has worked for the victim organization. Those with six to 10 years’ tenure caused a median loss of $210,000, and those with more than 10 years’ tenure caused a median loss of $250,000. People who remain with an organization for a long time often move up to higher levels of authority, the ACFE notes, and that gives them the opportunity to commit larger misdeeds.

Which gender are they?

Fraud isn’t, of course, limited to one gender, but 69% of perpetrators in the ACFE study were male. This is consistent with gender distributions in previous studies.

Moreover, men generally cause larger losses. The median loss caused by a male perpetrator was $187,000, while the median loss caused by a female was $100,000. This disparity also is consistent with earlier studies.

What about educational level?

Perpetrators with a college degree caused a median loss of $200,000, and those with postgraduate degrees rang up a median loss of $300,000. These losses were significantly higher than the losses caused by less educated fraudsters.

The ACFE theorizes that the discrepancy may be heavily influenced by the perpetrator’s department and position of authority. The perpetrators with degrees were more likely to be managers or owner-executives. And higher-level fraudsters generally are better positioned to override or circumvent antifraud measures. So, their schemes are harder to detect, run longer and generate more losses.

What should you look for?

Perpetrators tend to exhibit some red flags that may indicate fraud. In the study, of the 17 traits identified, the most common warning signs were:

  • Living beyond their means,
  • Financial difficulties,
  • Unusually close association with a vendor or customer,
  • Excessive control issues,
  • A general “wheeler-dealer” attitude involving unscrupulous behavior, and
  • Recent divorce or family problems.

At least one of the six indicators listed above was displayed in 79% of the cases.

It’s important to remember that the behaviors described above are merely signs of fraud — they aren’t conclusive. Further investigation is required before you take any action, particularly suspension or termination.

Stay alert

The ACFE estimates that organizations lose 5% of their annual revenues to occupational fraud. That’s a significant chunk of change for budget-conscious nonprofits. If you suspect your not-for-profit might have fallen prey to a fraud perpetrator, or just want to do everything you can to help combat it, we can help.

Contact one of our financial professionals TODAY to learn more about how we can take you to the next step.


Topics: Accounting Tips, Not-for-Profit, Tax, Audit