Who Commits Occupational Fraud? The Surprising Results

Posted on 02.05.2020

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The Association of Certified Fraud Examiners is a great resource for learning more about occupational fraud. Case in point: the Report to the Nations: a global study on occupational fraud and abuse.

The 2018 Report to the Nations revealed surprising insights into workplace fraud: what it is, who commits it, and how to prevent it. Here are some of the takeaways:

What is Occupational Fraud?

As defined by the ACFE, occupational fraud is fraud committed against an organization by its own officers, directors, or employees. It’s an attack from within by the people entrusted to protect its assets and resources.

This can take many forms. The ACFE defines several categories across 23 major industries, including corruption, cash theft, theft of non-cash assets, financial statement mishandling, and more.

The 2018 Report to the Nations analyzed 2,690 cases of occupational fraud that were investigated between January 2016 and October 2017 in 125 countries around the world.

The Cost of Occupational Fraud

Analyzed businesses lost $7 billion in total occupational fraud costs. The median loss per case was $130,000. And 22% of cases caused losses of more than $1 million.

The size of the organization also mattered. Small businesses lost almost twice as much per scheme to fraud. There was an average median loss of $104,000 for companies with more than 100 employees and an average $200,000 median loss for companies with less than 100 employees.

Costs varied by perpetrator, too. Losses caused by men were 75% larger than losses caused by women. And median losses were far greater when fraudsters worked together.

Owners/executives accounted for a smaller percent of frauds but the ones they did commit cost significantly more: $850,000 median loss per case.

And that is not even taking into account the non-monetary cost of fraud: the cost to rehire a position, the effect on employee morale, the cost to customers and reputation, and more. Similar to the cost of a bad hire, the cost of occupational fraud is often far greater than it appears.

While it can be difficult to calculate the total cost of occupational fraud worldwide, the fact remains clear that it hurts businesses — and organizations targeted rarely receive the full remuneration back.

Who Commits Workplace Fraud and Abuse?

The ACFE reports that fraud perpetrators range in level of authority, gender, life circumstances, and more. But there are some commonalities.

Fraudsters who had been with the company longer stole twice as much. Those with more than five years’ tenure at the organization cost a $200,000 median loss per case, whereas those with less than five years’ tenure cost a $100,000 median loss.

In the analyzed cases:

  • 44% of cases were perpetrated by employees, with a median loss of $50,000.
  • 34% of cases were perpetrated by managers, with a median loss of $150,000.
  • 19% of cases were perpetrated by owners/executives, with a median loss of $850,000.

77% of the analyzed occupational schemes came from eight departments: accounting, operations, sales, executive/upper management, customer service, administrative support, finance, and purchasing.

In terms of educational level, more education was more of a risk factor.

  • 24% of cases were perpetrated by a person with a high school diploma or less, with a median loss of $75,000.
  • 15% of cases were perpetrated by a person with some university, with a median loss of $130,000.
  • 47% of cases were perpetrated by a person with a university degree, with a median loss of $160,000.
  • 14% of cases were perpetrated by a person with a post-graduate degree, with a median loss of $230,000.

How to Prevent Occupational Fraud

The ACFE identified several ways organizations can exercise more fraud prevention.

Many initial detections were made through tips. Employees provided nearly half of all tips, and organizations with tip hotlines detected fraud more frequently.

85% of fraudsters also displayed at least one behavioural red flag — including financial difficulties, complaining about their wages, recent changes in life circumstances (such as divorce), a “wheeler-dealer” attitude, and more.

Background checks also play a role in fraud prevention.

Of the cases analyzed by the ACFE, 52% had run a background check on the perpetrator before hiring but 48% had not. The most common checks run were employment history and criminal checks, but credit checks, educational verifications, and reference checks were run less frequently.

What was also surprising was that in many cases occupational fraud isn’t reported. Even when caught, not all perpetrators were arrested, litigated, or even terminated. Some stayed on at their organizations, while others were given the option to resign or put on probation.

Key Takeaways from the ACFE Report to the Nations:

While occupational fraud is an ongoing issue, there are steps companies can take to exercise more due diligence and prevention. In terms of background checks:

  • Pre-screen candidates at all levels, even executive. While those fraud cases were less common, they cost significantly more. It’s easy at this level to be dazzled by experience or a referral but take the time to be certain of the person you’re hiring.
  • Continue screenings post-employment – especially credit checks. It can save a lot in the long run. Make it routine so it’s not singling anyone out.
  • Don’t skip employment reference checks. They could reveal costly past behaviour that was never reported, especially if the right questions are asked.

Read the full 2018 ACFE Report to the Nations: https://s3-us-west-2.amazonaws...

Add pre- and post-employment screenings to your occupational fraud due diligence today. Triton Canada has solutions that make them easy to incorporate. We offer criminal background checks, probing reference questions, credit check verifications, and more.

Call 1-844-874-8667 or visit www.tritoncanada.ca/business.