How Your Average Guy Became a Fraudster

Posted by Amanda Nieweler

on November 19, 2015

Fraud WeekThe Rise and Fall of an Fraud Scheme via The ACFE

Do you know anyone who would commit fraud? It’s a fair question. You’d probably say “nobody I know, absolutely not!”

What about this question: has your company suffered any type of fraud? If you answered yes, who committed it? I’ll bet you’ll answer that it was someone who you didn’t think in a million years was capable of committing it.

In most acts of fraud, three circumstances lead to the commencement of that fraud – the incentive to commit the fraud, the opportunity to carry out the fraud, and the ability to rationalize or justify why the participation in the fraud was necessary – affectionately known as the Fraud Triangle.

The usual red flags should always be on the radar in any company:

  • The employee’s spouse has lost a job
  • Employee is living outside their means
  • The employee is divorced and has expensive child or spousal support payments
  • The employee has a drug, alcohol, or gambling problem.
  • The employee never takes a vacation
  • etc.

However there may be some less obvious fraud triggers. In many cases, frauds are perpetrated by employees who are already financially stable. The fraud may not be commenced because of a financial need, but rather an ideal situation that person has built up in their minds.

This video, from The ACFE features Nathan Mueller. He was just a regular guy with a great paying job. His wife also had a great paying job. But an opportunity to realize that little niggling ‘ideal’ he had, triggered the start of his four-year long embezzlement scheme. Of course the lack of controls, checks, and balances at the company, aided in his effort. He had the knowledge and the opportunity:

Fraud Week: Embezzlement Scheme

Small department, high dollar business

What the company should have done was to put tighter controls in place. Nathan had too many ‘permissions’ that the company probably didn’t even think twice about. In fact Nathan had no idea of his ‘permissions’ until he stumbled upon his new found authority resulting from new systems being put into place after a merger. The next four years became ‘the company won’t notice the $5000 check I issue to myself alongside the legitimate multi-million dollar check I issue outside the company.” Profile of a Fraudster: Department

For Nathan, the incentive was paying off student loans so that his newly pregnant wife could stay home from work with the new baby and Nathan could support them all with his existing salary. The opportunity arose when he stumbled upon his new found authority mistakenly given to him due to lack of controls during a company take over. The rationalization was ‘the company won’t miss a few checks I write to myself in the whole scheme of things – that being multi-million dollar payments leaving the company daily.

Fraudsters look like you and me. Statistics show they are usually in the range of 31 to 45 years of age, with older fraudsters causing the most damage. Probably due to that old adage ‘with age comes wisdom’. According to The ACFE, 53% of fraudsters have been with their company for more than five years. But being a fraudster is certainly not a wise goal to strive for in life.

It was an employee who finally shot an arrow through this fraudster’s bubble. He was caught by a fellow co-worker, plead guilty, and was sentenced to 97 months in prison.

More fraud is detected by anonymous employee tips than by all other means combined. While it is important to continue to utilize multiple fraud deterrent methods such as external audits, separation of duties, and fraud awareness training, the most important tool an organization can implement is a confidential reporting hotline. A hotline is simple, providing an immediate means of communication that offers support and encouragement to employees.

What does your fraud prevention look like? Don’t sweep it under the rug. Learn more with this fraud prevention handbook.

eBook: Ultimate Fraud Prevention Handbook