Profile of a fraudster: Does your company have one?

A fraud suspect might not be easy to pick out of a crowd -- or from a rap sheet.

The average fraud perpetrator has no prior fraud charges or convictions, according to new research by the Association of Certified Fraud Examiners (ACFE), provider of anti-fraud training and education. The offender is commonly between the age of 31-45, and somewhat more likely to be male than female.

More insights gleaned from the study help fill out the profile. Behavioral red flags, tenure at an organization, position and educational background are all criteria examined in the ACFE's 2010 Report to the Nations on Occupational Fraud & Abuse. The Report is drawn from a survey of Certified Fraud Examiners (CFEs) who investigated fraud cases between January 2008 and December 2009.

In addition to studying the traits of perpetrators, the report includes data on how occupational fraud is committed and detected, as well as the characteristics of the victim organization. For the first time, the report includes global data among the 1,843 cases of fraud that were studied.

Key findings about fraud perpetrators from the 84-page report include:

  • High-level perpetrators cause the greatest damage to their organizations. Frauds committed by owners/executives were more than three times as costly as frauds committed by managers, and more than nine times as costly as employee frauds. Executive-level frauds also took much longer to detect.
  • Fraud offenders were likely to be found in one of six departments. More than 80 percent of the frauds in the study were committed by individuals in accounting, operations, sales, executive/upper management, customer service or purchasing.
  • More than half of all cases in the study were committed by individuals between the ages of 31 and 45. Generally speaking, median losses tended to rise with the age of the perpetrator.
  • Most of the fraudsters in the study had never been previously charged or convicted for a fraud-related offense. Only seven percent of the perpetrators had been previously convicted of a fraud offense. This finding is consistent with prior ACFE studies.
  • Fraud perpetrators often display warning signs that they are engaging in illicit activity. The most common behavioral red flags displayed by the perpetrators in our study were living beyond their means (43 percent of cases) and experiencing financial difficulties (36 percent of cases).
  • The information helps arm owners, managers, anti-fraud professionals, law enforcement and others with more insight into the risk factors of fraud.

"Fraudsters exhibit behavioral warning signs of their misdeeds," said ACFE President James D. Ratley, CFE. "It's important to remember that this human element of fraud -- demonstrated in red flags such as living beyond one's means or exhibiting control issues -- is not identified through an audit or other traditional controls.

"This is why the staff at any organization should be trained to recognize these and other common behavioral signs that a fraud might be occurring," Ratley said. "Moreover, they should be encouraged not to ignore such red flags, even when discovered by accident, as they might be the key to detecting or deterring a fraud."

The 2010 Report to the Nations is available for download online at the ACFE's web site. The rport is in PDF format.

The first Report to the Nation was published by the ACFE in 1996. The ACFE has published subsequent editions in 2002, 2004, 2006, 2008 and now 2010. Over that time, the rport has come to be regarded as the most authoritative statistical resource available on occupational fraud.

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