Reporting the Red Flags of Fraud

By Jason Thompson, CPA/ABV, ASA, CFE, CFF
Partner and Director of Valuation and Litigation Services
jthompson@sponselcpagroup.com

Occupational fraud continues to be an all-too-common threat across a wide spectrum of industries. Perpetrators range from entry-level employees to C-suite executives. Small businesses with under 100 employees are particularly vulnerable to fraud, experiencing a median loss of $200,000. This is one of the many insights presented in the 2018 Report to the Nations from the Association of Certified Fraud Examiners (ACFE).

Among other things, this report identifies the employees and departments that pose the greatest threat to organizations when it comes to occupational fraud.

According to this study, fraud is most often committed by perpetrators who fall within the following demographics. Keep in mind that these demographics are not indicative of employees who will definitely commit occupational fraud; they are merely common demographics among occupational fraud perpetrators.

Gender — In the United States, men accounted for 58% of all occupational fraud cases. Even when taking authority level into consideration, men still tend to cause larger losses than women in managerial and owner/executive positions.

Age — According to the study, the largest median losses were caused by fraudsters aged 56 and older.

Education — Approximately 60% of perpetrators have a college degree or higher.

Position of perpetrator — Occupational fraud is committed most frequently by low-level personnel, but fraud committed by managers/executives results in much higher median losses.
o Employee — 44% of cases; median loss of $50,000
o Manager — 34% of cases; median loss of $150,000
o Owner/Executive — 19% of cases; median loss of $850,000
o Other — 3% of cases; median loss of $189,000

Perpetrator’s tenure with the business — Fraud losses significantly increase based on how long the fraudster worked for the company.
o Less than 1 year — 9% of cases; median loss of $40,000
o 1-5 years — 44% of cases; median loss of $100,000
o 6-10 years — 23% of cases; median loss of $173,000
o More than 10 years — 24% of cases; median loss of $241,000

Department within organization — Employees in the accounting department generated the highest number of occupational fraud cases, followed closely by operations and executive/upper management.

Prior criminal background or negative employment history — Most occupational fraudsters are first-time offenders. ACFE’s 2018 study found that only 4% of fraud perpetrators had previously been convicted of a fraud-related offense.

Fraud losses tend to be much lower in organizations with telephone hotlines or some other kind of anonymous reporting mechanism. Random audits and forensic data monitoring also rank among the most effective tools for detecting occupational fraud.

If you are concerned about occupational fraud in your organization, please call Jason Thompson at (317) 608-6693 or email jthompson@sponselcpagroup.com.

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