We are all rightfully concerned about external schemes to defraud companies by would-be perpetrators wreaking havoc by hacking into our IT systems.   However, the fact is the vast majority of corporate fraud is occupational fraud – committed and concealed (for a while at least) by company employees.

Since 1996 The Association of Certified Fraud Examiners has published a comprehensive report on the costs and effects of occupational fraud.  The 2020 study can be found at www.acfe.com>reporttothenations.  If you have an interest in this area I strongly encourage you to at least page through the study.  The report is very readable using numerous charts and graphs.   If you are overly paranoid, don’t spend too much time with it or you may decide to just sell or liquidate your business.  And remember; this study can only analyze those whose frauds were eventually uncovered.

You’re probably thinking, like I did when I starting speaking on fraud avoidance for the OSCPA and others; let’s determine who is committing these frauds and we just won’t hire them!  Easy enough. Unfortunately, the answer, uncovered by the ACFE is; everyone is committing these frauds.  To review, here are some characteristics of perpetrators of fraud.

Gender: Once male-dominated (and it still is in parts of the world) in the United States and Canada 59% of frauds were perpetrated by males and 41% by females.

Age: Age distribution of fraud perpetrators is a bit of a bell-shaped curve with 53% being committed by those between the ages of 31 and 45.  Just 4% of occupational frauds were committed by those under 26 and 3% over 60.  However, by far the largest median loss was frauds committed by those over 60.

Age           % of cases          Median loss

< 26                  4%                    $20,000

26-30              10%                   $65,000

31-35              16%                   $80,000

36-40                  19%            $150,000

41-45                  18%            $141,000

46-50                  14%            $213,000

51-55                   8%             $207,000

56-60                   6%             $400,000

>60                     3%             $575,000

Education: 49% of frauds were perpetrated by those with University degrees.  22% by those with a high school education or less; 14% with some University and 15% with post-graduate degrees.   Have to pay those college loans somehow.

There are more but you get the picture.  Looking into the perpetrator’s department – it is all departments.  Yes, accounting has more cases than most departments but that is in keeping with Willie Sutton’s famous answer to why he robbed banks “Because that’s where the money is.”

For those proud you’re doing background checks for new employees, consider this sobering thought; 89% of perpetrators had never been charged or convicted of fraud.  4% had been convicted and 7% had been charged but not convicted.   Keep doing background checks, but that is not nearly enough.

The most important part of this article follows.  There are three ingredients to any employee fraud:

  • Need
  • Opportunity
  • Justification

As a business owner, the only ingredient you can control is OPPORTUNITY.

We will discuss this and actions you should all be taking to minimize your risk of occupational fraud in next month’s article.  By the way, some of them cost very little money!

To quote the line from Hill Street Blues; “Let’s be careful out there”

Stanley Olejarski