The old saying goes, “You can’t judge a book by its cover.” But in the world of fraud, that may not be the case.
Similar characteristics turn up time after time among fraud perpetrators, according to the Association of Certified Fraud Examiners’ 2014 Report to the Nations on Occupational Fraud & Abuse, a biannual study of occupational fraud cases worldwide.
Although an employee may possess one or more of the following traits or characteristics, that is not reason to suspect them of committing fraud.
All other considerations must be taken into account, along with the evidence implicating the employee.
The report revealed these common traits or characteristics of employees who commit fraud:
- Age More than half of offenders are between 31-45 years of age. The older the perpetrator, the larger the loss. While accounting for only 3 percent of cases, those age 60 and over who committed fraud stole a median $450,000, compared to $35,000 for those younger than 26.
- Gender Males committed two-thirds of employee crimes in the 2014 study, compared to one-third by females. The median loss associated with males – $185,000 – was more than double the median loss associated with females at $83,000. This can be broken down even further by level of authority in the organization. More men are in higher levels of authority and commit 83 percent of crimes at the highest levels, compared to 70 percent at the management level and 56 percent among non-management employees.
- Tenure Most perpetrators of fraud have been with the company for more than five years, 53 percent. Another 40 percent have worked with the company between one and five years. Only 7 percent are in their first year. As might be expected, the longer the employee has worked for the company, the larger the theft. The median theft by those with more than five years with the company is more than $200,000, while new employees steal a median $51,000.
- Position The median loss by the perpetrator’s position in the company also varies widely. Crimes by owner/executives, which occur in 19 percent of cases, net a median $500,000. Theft by managers, 36 percent of cases, amount to a median $130,000. Non-management theft is the most common, but the amount stolen is the least, a median $75,000.
- Department Three-fourths of employees who commit fraud work in one of the following departments: accounting, operations, sales, customer service, finance, upper management or purchasing. Most, 17 percent, were employed in the accounting department where they had easier access to records and documents to conceal or perpetrate a fraud.
There are some behaviors that are overwhelmingly present among those who steal from their employers.
The biggest one, by far, found in 44 percent of cases, is that the employees are living beyond their means. They own homes, cars and other property that employees in their positions could not normally afford. They may also take luxurious vacations.
The second hint that someone may be tempted to steal is that they have been having financial struggles that seem to be getting worse. One-third of all the offenders in the fraud study had financial difficulties.
Many are “wheeler-dealers” or may be seen as “control freaks.” They typically will have a high confidence level, bordering on narcissistic.
Another situation that raises a major red flag is for an employee to have an unusually close relationship with a vendor or regular customer. This situation happens in 22 percent of cases.
In addition, other characteristics that are prevalent with those who have been caught stealing from their employers include:
- Divorce or family problems (17 percent)
- Defensiveness (15 percent)
- Irritability and suspiciousness (15 percent)
- Drug or gambling addictions (12 percent)
- Complaints about inadequate pay (9.5 percent)
- Refusal to take vacations or sick days (8.5 percent)
- Excessive pressure from within the organization (8.5 percent)
- Social isolation (7.5 percent)
- Complaints about lack of authority (6.5 percent)
- Excessive family/peer pressure for success (6 percent)
- Past legal problems (5.5 percent)
An overwhelming number of employees who commit fraud – 93 percent – have no prior criminal record or history of a fraud-related offense, so it is difficult to pinpoint offenders before it is too late.
The presence of these characteristics does not, in and of itself, signify that an employee is committing fraud or will in the future. These are just the common traits and characteristics that are found in many perpetrators of fraud.