White collar crime – fraud, embezzlement, Ponzi schemes, insider trading, identity theft, etc. – hits the headlines only when the most spectacular cases break. Some individuals become infamous because of the crimes they committed (Bernard Madoff). In other cases, the person who is accused of committing a crime is already famous (Martha Stewart).
Notable cases are less frequent, but white collar criminal acts occur regularly. A 2018 report from the Association of Certified Fraud Examiners analyzed 2,690 cases of occupational fraud that were investigated between January 2016 and October 2017 and estimated the cost to companies was $7.1 billion. The median loss in these cases was $130,000 and 22% of the cases caused losses of $1 million or more.
Who’s committing white collar crimes?
Those are startling numbers. The high cost to companies is why businesses invest substantial resources to prevent fraudulent activity. However, flushing out perpetrators is rarely easy. The same report states that 85% of occupational fraud perpetrators in the 2,690 cases they analyzed had never been punished or terminated for fraud-related conduct prior to the crimes in the study.
Interestingly, the report notes that doesn’t mean such a high percentage of perpetrators are first-time offenders. Nearly three in 10 who committed fraud (28%) in the study either were not punished by their employer, were permitted to resign or reached a private settlement agreement. The actual number of repeat offenders may not be reflected in employment background checks, the report surmises.
What are some behavioral red flags that may tip companies off to fraudulent activity within their ranks? Perhaps not surprisingly, the top one is someone living beyond their means. That is followed by:
- Someone experiencing financial difficulties
- An unusually close relationship with a vendor
- Control issues marked by an unwillingness to share duties
- Divorce or family problems
- A “wheeler-dealer” attitude
These red flags varied by the perpetrator’s position within the company. Owners or executives were more likely to have an unusually close relationship with a vendor, or exhibit control issues, while employees who committed fraud were more likely to be wrestling with financial problems.
Between 2008 and 2018, the number of cases of fraud that were reported to law enforcement ranged from 58% to 69%. An average of 22% of the cases analyzed resulted in civil lawsuits being filed. Factors that influence this response include the amount of financial loss, the strength of evidence and prosecutorial discretion.