Building: International Conference on Corporation Management
Room: on-line
Date: 2020-12-03 10:35 AM – 10:39 AM
Abstract
During 2019-2020, we conducted a study, the main purpose of which was to establish the main features inherent in persons who commit financial fraud in Ukrainian corporations. Our survey included several questions focused on the fraudsters` job details, basic demographics, prior misconduct, and behavioral warning signs. This information was compiled to help organizations better understand and identify the risks and red flags of fraud in their own workforces.
The perpetrator’s level of authority within an organization tends to strongly correlate with the size of a fraud. Owners/executives accounted for only 20% of the frauds in our study, but the median loss in those cases far exceeded the losses caused by managers and staff-level employees. This is consistent with our past studies, all of which found that losses tend to rise in tandem with a fraudster’s level of authority. Owners/executives are generally in a better position to override controls than their lower-level counterparts, and they often have greater access to an organization’s assets. Both of these facts might help explain why losses attributable to this group tend to be so much larger.
The longer a fraud perpetrator works for a company, the more damage that person’s scheme is likely to cause. The impact of tenure on fraud losses remains evident even when we control for the fraudster’s level of authority.
What this tells us is that longer-tenured fraudsters do not steal more merely because they have been promoted over time to higher levels of authority. Instead, their added experience with their organizations seems to improve their skills or abilities related to committing fraud. This might be because they become better at identifying gaps or weaknesses in internal controls, because they become more trusted (and thus are subject to lower levels of review by peers and supervisors), or because they learn over time how others have successfully committed fraud. Regardless, this data indicates that the ability to defraud an organization seems to be something people improve at with experience.
This illustrates the relative risks of occupational fraud in the different parts of a typical organization, which may help anti-fraud professionals effectively allocate anti-fraud controls and resources. For example, the executive/upper management team and the accounting department were both associated with high frequency and median loss, which indicates that fraud risks in these areas should be carefully addressed in any anti-fraud program.
Men also caused a significantly larger median loss than women. We examined gender distribution and median loss data based on the perpetrator’s level of authority. At all levels of authority (employee, manager, and owner/executive), males committed a much larger percentage of frauds than women did. Male owners/executives and managers also accounted for much larger losses than their female counterparts. This was particularly true at the owner/executive level, where the median loss caused by men was more than four times larger than the median loss caused by women. At the employee level, however, losses caused by males and females were equal.
The age distribution of fraud perpetrators in our study was bell-shaped, with 53% of fraudsters between the ages of 31 and 45. Median losses, on the other hand, tended to rise along with the age of the perpetrator. Those in the 56 to 60 and 60+ age ranges together accounted for less than 10% of all cases, but they caused median losses of UAH 700,000 and UAH 875,000, respectively, which were by far the highest losses in any age range.
We also found a correlation between the perpetrator’s education level and median loss. Fraudsters with a high school degree or less caused a median loss of UAH 120,000, while those with a postgraduate degree caused a median loss of UAH 340,000. Generally, we would expect losses to correlate with education because those with higher levels of education tend to hold higher positions of authority and might also have greater technical capabilities for committing fraud.
The results of the study can be used by personnel management services and the economic security service of corporations to prevent and neutralize the possibility of financial fraud.