Employees who commit fraud typically strive to keep the schemes running as long as possible by concealing their activity from others. The success of thieves is largely determined by their identities, roles within their organizations, and the type of fraud they commit. To detect fraud in your company and avoid financial losses, get familiar with common perpetrator characteristics and the tactics occupational thieves employ to hide their crimes.
Identity and Fraud
Every two years, the Association of Certified Fraud Examiners (ACFE) publishes a report containing a detailed evaluation of occupational fraud based on actual cases. The most current report, Occupational Fraud 2024: A Report to the Nations, indicates that, while employees and managers perpetrate the majority of fraud, schemes involving company leaders are the costliest. Employees are accountable for median losses of $60,000, managers for median losses of $184,000, and owners and executives for $500,000 in median damages. Gender, tenure, education level, and age are also important. Men, long-tenured employees, workers with a college degree or higher, and those over the age of 50 are all linked to more expensive fraud schemes.
It’s important to note that employees who exhibit traits similar to fraud perpetrators won’t necessarily commit fraud. However, keeping fraud statistics in mind might help your organization develop safeguards and monitor employees for illegal activity.
Physical Documents
The ACFE report indicated that 89% of fraud occurrences involve some type of concealment. In 41% of cases, fraudsters create or modify physical documents. Given that many internal controls involve paperwork, it’s understandable that criminals would seek to alter or reproduce physical documents to hide their tracks. Some individuals, like CEOs, are in a better position to modify documents and can also prohibit lower-level employees from raising concerns or asking questions.
However, if staff see unusual or suspicious documents, they should not just dismiss them. Typos, font variations and calculation errors are all warning indicators that merit further investigation. Make sure employees know they can come to you. Offer them a tipline or an online site where they may anonymously report fraud suspicions.
Occupational fraudsters also destroy or withhold physical documents (23% of the time) to conceal theft. To help counteract this concealment, create checklists that specify which documentation must be present to support or approve financial transactions. Missing documents should be reported, and transactions should be blocked until they are received. Keep track of all missing documents to identify patterns and expose potential fraud.
Electronic Files
Thieves frequently generate or alter electronic documents (31% and 28% of cases, respectively). Employees who are responsible for reviewing transactions and supporting digital documents should be trained in analyzing an electronic document’s properties for unauthorized use. Depending on the software package used, such investigations can show a document’s author, creation date, and number of versions.
Obviously, if you come across an accounting document created or altered by a non-accounting employee or member of management, you should ask questions. However, do not attempt to recover any deleted files. If you suspect fraud, hire a forensic accountant to conduct computer forensics tasks.
Arrange for an Investigation
Understanding fraud concealment strategies can help you detect schemes before they cause crippling damages to your organization. If you believe an employee is hiding something that may be fraudulent, contact us to investigate.
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