Is an Employee Stealing from Your Company?

One of the costliest financial crimes is occurring in workplaces right now. In fact, it could be happening in the office next to you.

According to the Association of Certified Fraud Examiners (ACFE) 2022 study, occupational fraud — committed by employees against their employers — causes billions in annual losses globally. Financial fraud experts estimate that organizations lose five percent of their revenue to internal scams every year.

This is a shocking number that applies to business owners and executives in every sector, from large multinationals to small nonprofits. No employer is exempt. But the more you know about who commits these crimes — and how they are committed — the more likely you are to stop employee fraud before it damages your company’s reputation and bottom line.

Employees who commit fraud come from specific demographics.

The ACFE has studied organizational fraud for many years. Over time they've noticed a distinct demographic profile.

• Most perpetrators are men.
  Seventy-three percent of perpetrators in the ACFE study were men, and men caused higher median losses ($125,000) than women ($100,000).


• Losses increase with age and education level.
  Most fraudsters (54%) are between the ages of 31 and 45, but the older the perpetrator, the greater the loss. For example, only three percent of fraudsters are older than 60, but they caused median losses far higher ($800,000) than any other age group.
  
  Forty-seven percent of perpetrators have a college degree and are responsible for the highest median losses ($150,000). Those with postgraduate degrees (18%) cause $135,000 in losses. These statistics are likely because people with more education usually hold higher positions of authority and might have greater technical agility in committing fraud.


• Owners and executives cause the largest losses.
  Owners and executives are responsible for only 23% of fraud, but they cause the largest losses ($337,000). People with higher levels of authority can often override anti-fraud controls and have easier access to company assets.


• Tenured employees do the most damage.
  The longer a perpetrator works at a company, the more damage he can cause. Those who have worked at the victim organization for at least 10 years stole a median of $250,000, which is five times greater than employees who have worked for a company less than a year. This may be due to familiarity with gaps in internal controls and an increased level of trust in longer-term employees.


• Perpetrators usually work in operations, accounting, upper management, and sales.
  More perpetrators work in these four areas than any other department in the company.
  
  In operations, 48% of fraud involves corruption, including extortion, bribery, and conflicts of interest. In accounting, fraud usually involves corruption (33%) and check/payment tampering (29%). Executives and upper-level managers most often commit corruption schemes (65%) and billing fraud (31%). Sales executives also more frequently engage in corruption (51%).


• Most are first-time fraudsters – or are they?
  You would think most perpetrators are first-time offenders as only six percent have a fraud-related criminal history and 81% say they’ve committed no previous crimes. However, 42% of the fraud incidents in this study weren’t reported to law enforcement, which could indicate that the percentage of repeat offenders is higher than reported.

Lifestyle and personality changes can indicate a fraud problem.

Employees who commit fraud tend to also exhibit some common behavioral patterns. According to the ACFE, 85% of perpetrators display at least one of these red flags, and 51% exhibited more than one.

• Living beyond their means
  Are employees buying very expensive new cars or second homes? Taking extravagant vacations? Living beyond their means is the most common red flag and is shared by 39% of fraudsters.


• Financial difficulties
  Twenty-five percent of employees are having financial problems. It’s no surprise they would steal to fix them.


• Unusually close association with a vendor or customer
  Employees with overly friendly vendor and customer relationships account for 20% of fraud, especially billing schemes.


• Control issues, including unwillingness to share duties
  Hiding criminal behavior requires concealment. Tightly controlling job duties is a hallmark of 13% of occupational fraudsters.


• Irritability, suspicion, bullying, or defensiveness
  Dishonest employees are under a lot of pressure from financial problems and attempting to hide their behavior from colleagues and families. Irritability, being suspicious, defensiveness, or bullying is common in 12% of office fraudsters.

Several other red flags stand out. For example, from seven percent to 11% of occupational fraudsters are experiencing addiction, marriage, and family problems. Six percent are socially isolated.

Another highly suspicious characteristic is that seven percent refuse to take vacations. They are likely afraid their schemes will be uncovered if they are away from the workplace for any length of time. Mandatory vacations are highly effective, reducing employee fraud and related losses by at least 50%.

In addition, the ACFE points out a correlation between fraud and other forms of workplace violations, with 50% of fraud perpetrators engaging in misconduct unrelated to fraud.

About 15% of fraudsters also have poor performance evaluations.

Adopting tight controls will help to prevent employee fraud.

How can your organization stop occupational fraud? The ACFE recommends tighter controls to prevent incidents before they happen. If you suspect that your company is at risk of fraud, act quickly. The ACFE offers a checklist and other tools on their site.

Synovus is committed to helping protect your company’s assets. For more details on our fraud solutions, simply complete a short form and a Synovus Treasury & Payment Solutions Consultant will contact you with more details. You can also stop by one of our local branches.