The Many Faces of The Fraudster

By Anthony W. Rapp, CPA, CFE, CGMA

arapp@maillie.com

What does a typical fraudster look like? What kind of fraud do they commit? How and why do they commit fraud? How much do they typically steal?  Data from the 2018 ACFE Report to the Nations shows the answers are as diverse as the people in our world, and there is no such thing as a typical fraudster. Let's take a look at some of the factors that can influence fraud.

One of the most important factors in the make up of the fraudster is position within the organization. The majority of frauds are carried out by employees, with management perpetrating the second greatest number of frauds, owner/executive fraud occurs even less often and a small percentage of fraud perpetrated by other persons or groups. However, when a fraud is carried out by an owner/executive the median loss from the fraud is about 5 and a half times greater than fraud perpetuated by management and 17 times greater than employee perpetrated fraud. The higher you go in the organization the longer the fraud can go on. For example, owner executive fraud schemes usually last twice as long as schemes by employees. There are fewer frauds at the top but they can be much more lucrative.

A similar factor to position within a company is tenure. Although most frauds are carried out by people within their second to their fifth year, the longer the tenure the greater the median loss, a fraud perpetrated by a ten or more year employee is 6 time greater than a fraud committed by an employee in their first year.

When fraud perpetrators are looked at by department no one group stands out far above the others with the highest incidence in the Accounting and Operations departments, generally accounting for 14% of cases each, but median losses from accounting are generally more than two times the loss from operations.

Men account for about 70% of fraud cases and the median loss per case is also significantly greater. Interestingly, a breakdown of these perpetrators reiterates that the higher a fraudsters position in the company, the greater the loss from their fraud.

When analyzing age, the report shows that incidence of fraud increases the older a group is until about the 35-45 range, which then decreases through retirement age.  It should be noted though that the older the perpetrator, the greater the median loss of a fraud.

Finally, with education level, persons with a bachelors degree commit about 50% of fraud, but the greatest median loss comes from those with postgraduate degrees.

In looking at the data from the report, while it seems that the fraudster could be just about anyone, the costliest frauds come from those who tend to be scrutinized the least, management, board members, owners, long tenured employees.  Perhaps the biggest takeaway from the information in the 2018 ACFE Report to the Nations is that there is no such thing as your typical fraudster and demonstrates the need for judicious use of professional skepticism in combatting fraud. If you are interested in receiving a fraud prevention checklist or speaking with a certified fraud examiner, contact me at arapp@maillie.com.