People Who Commit Fraud

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After reading this chapter, you will be able to:

  •  Understand the relationship between an employee’s position within a company and the frauds the person can commit.
  • Identify personal red flags of fraud that may indicate a potential fraud problem with an employee.
  • Differentiate between senior management fraud and frontline employee fraud.

Learning about fraud, its causes, and ways to prevent it includes examining who is committing fraud. Is fraud committed by inherently bad people? Or are people generally honest, but sometimes tempted to steal by outside forces?

From the book:

Aren’t people who commit fraud all the same? They’re dishonest types who are greedy by nature. They are deceitful in general, so by hiring honest people, companies are protected from theft. Right? Wrong.

Those who commit occupational fraud tend to have many similar characteristics, but they’re not all quite as easy to spot or as common as implied above. Understanding what motivates employees to steal from companies is the key to detecting and preventing internal fraud. Understanding the opportunities available for fraud at the various employment levels is helpful as well. Knowledge is power, and although just knowing about thieves and their characteristics won’t stop them, it is certainly a step in the right direction toward improving fraud prevention efforts and internal controls.

Position Equals Power

The amount of money lost to an internal corporate fraud is most significantly influenced by the perpetrator’s position in the organization. When we look at various characteristics of those committing fraud, this makes sense, because access creates opportunity. Typically, the higher a person moves in a company, the greater access she or he is granted to information, assets, data, and people. That creates more opportunities to commit fraud.

Men and women commit a fairly equal number of frauds at work. The most recent ACFE survey indicated that 61% of fraud schemes were perpetrated by men, while 39% were committed by women.19 The 2004 ACFE survey put the differential at 53% committed by men and 47% committed by women,20 while the 2002 survey cited that internal fraud were committed 54% by men and 47% by women.21 These differences are not terribly significant. Overall, the consensus is that men and women participate in a fairly equal number of fraud schemes.

Personal Red Flags of Fraud: Lifestyle Issues

  • Noticeable change in lifestyle or obvious wealth
  • Longstanding financial difficulties, including high debts and other financial obligations like child support and alimony
  • Spending beyond their means

Personal Red Flags of Fraud: Other Issues

  • Persistent personal problems – legal problems, interpersonal issues, addiction, criminal history, infidelity
  • Problematic attitudes at work – weak code of ethics, attempts to beat the system
  • Questionable work habits – poor performance, shirking responsibility, overly protective of job duties and documentation, chronic dissatisfaction, attempts to be alone (first one in, last one out), never takes a vacation, manager doing subordinate level work