When employees commit fraud, they generally try to keep the schemes going as long as possible by concealing their activities from others. How successful thieves are at concealment depends largely on their identities, their roles within their organizations and the type of fraud they commit. To uncover potential fraud in your organization and prevent financial losses, it helps to familiarize yourself with common perpetrator characteristics and the methods occupational thieves use to conceal their crimes.

Identity and fraud

Every two years, the Association of Certified Fraud Examiners (ACFE) releases a comprehensive study on occupational fraud based on real-life incidents. The most recent report, Occupational Fraud 2024: A Report to the Nations finds that while most fraud is committed by employees and managers, schemes involving company leaders are the most costly. Employees are responsible for median losses of $60,000, managers for median losses of $184,000, and owners and executives for $500,000 in median losses. Gender, tenure, education level and age also matter. Men, long-tenured employees, workers with a college degree or higher, and individuals over age 50 are all associated with more costly fraud schemes.

It’s important to stress that employees who match characteristics of the typical or most costly fraud perpetrators aren’t necessarily going to commit and conceal fraud. However, keeping fraud statistics in mind can help your organization implement safeguards and monitor workers for illicit activities.

Physical documents

The ACFE report found that 89% of fraud incidents involve some form of concealment. In 41% of cases, fraudsters create or change physical documents. Since many internal controls require paperwork, it’s easy to see why perpetrators would need to alter or create physical documents to cover their tracks. Some employees, such as executives, are in a better position to alter documents and then prevent rank-and-file employees from asking questions.

But if employees encounter unusual or suspicious documents, they can’t simply dismiss them. Typos, font differences and calculation errors are all red flags that merit a closer look. Be sure workers know they can come to you. Or offer them a tipline or web portal to anonymously report fraud suspicions.

Occupational fraudsters also destroy or withhold physical documents (23% of cases) to conceal theft. To help combat such concealment, establish checklists that stipulate documents that must be present to support or approve every financial transaction. Missing documents should be flagged and transactions should be denied until they materialize. Be sure to track every incidence of missing documents to spot patterns and help uncover potential fraud.

Electronic files

Thieves often create or alter electronic documents (31% and 28% of cases, respectively), too. Employees tasked with reviewing transactions and supporting digital documents should receive training on how to examine an electronic document’s properties for non-authorized use. Depending on the software package, such investigations can help reveal a document’s author, creation date and number of revisions.

Obviously, if you find an accounting document authored or updated by a non-accounting employee or member of management, you should ask questions. However, don’t try to recover any deleted files. If you suspect fraud, contact a forensic accountant to perform computer forensic tasks.

(This is Blog Post #1569)