Most fraud schemes follow recognizable patterns. The Fraud Tree breaks down occupational fraud into clear categories and sub-schemes, helping anti-fraud professionals better understand how fraud is committed, detected and prevented. This blog explores the history behind the framework and why it remains one of the profession's foundational tools.
Occupational fraud is defined as “the use of one’s occupation for personal enrichment through the deliberate misuse or misapplication of the employing organization’s resources or assets.” As an anti-fraud professional, you likely see this term used a lot. The Report to the Nations, published every two years by the Association of Certified Fraud Examiners (ACFE), centers around the primary goal of identifying the frequency and cost associated with various types of occupational fraud.
One of the aspects that allows the Report to the Nations to stand the test of time over 30 years is its formal definitions of occupational fraud schemes. Fraud takes many forms, but ACFE research shows that the methods used by fraudsters generally fall into several well-established categories found across all types of organizations and industries.
Knowing how occupational fraud is committed and detected, the characteristics of victim organizations and perpetrators, and the steps taken after investigations ended are essential. But when it comes to defining strategies and allocating resources to establishing internal controls and making budget considerations, every fraud fighter knows that there is no one-size-fits-all approach to fraud risk management.
That is why understanding the basic taxonomy of occupational fraud, and which schemes your organization may be most vulnerable to, is the true power behind the Fraud Tree.
Formally called the Occupational Fraud and Abuse Classification System, the Fraud Tree gives a visual representation of how occupational fraud is committed. The system is constructed under three primary fraud categories:
Under each of these categories in the Fraud Tree are specific schemes that have been documented over several decades. This structure gives a clear hierarchy and broad view of the landscape of occupational fraud and the various ways that it can impact businesses.
In Occupational Fraud 2026: A Report to the Nations, 90% of cases submitted by Certified Fraud Examiners (CFEs) that inform the report included asset misappropriation; 45% of cases involved corruption and 6% included some form of financial statement fraud. While the number of cases heavily skews toward asset misappropriation, the median loss per case is actually the inverse: Financial statement fraud was the costliest, with a median loss per case of $1 million, followed by corruption ($150,000) and asset misappropriation ($100,000).
It’s also important to note that a single scheme can contain elements of one, two or all three categories of occupational fraud. The Fraud Tree provides an understanding of the sub-schemes that fall under each of the overarching categories, which is critical to understanding not only how various elements of fraud work in tandem but also recognizing where your organization may be uniquely susceptible to fraud.
The Fraud Tree was developed in the late 1990s after Dr. Joseph T. Wells, CFE, CPA, founder and chairman of the ACFE, realized that formal definitions and data about occupational fraud were not readily available. Dr. Wells understood that the same types of schemes were happening across different businesses — regardless of industry or sector. The theory was that by defining the methods by which occupational fraud is committed, organizations would be able to develop preventive and detective controls to combat them.
When the decision was made to conduct the first survey that informed the Report to the Nation on Occupational Fraud and Abuse (the U.S.-focused predecessor to the global Report to the Nations first released in 2010), the Fraud Tree found its roots thanks to the work of a young ACFE staff member in his first job out of law school.
That staff member was current ACFE Chief Executive Officer John Warren, J.D., CFE, who, in his first project, worked directly with Dr. Wells to read more than 2,000 case details submitted by CFEs. Those paper-based surveys were, literally, sorted and stacked into piles based on the schemes by which fraud was committed.
It was a labor-intensive process, as Warren recalls, with the end goal of developing a taxonomy under the three overarching categories of occupational fraud.
Three decades later, the taxonomy that took months to discuss and develop still forms the basis of our understanding of occupational fraud — and it continues to serve as a reminder that, while the manner and mechanisms by which fraud is committed may change, the schemes still follow established, repeatable patterns.
Today, the Fraud Tree is an educational tool used by everyone from experienced professionals supporting their clients to educators in college and university classrooms who include it as part of their curriculum. Organizations employ the Fraud Tree to shape the framework for their anti-fraud programs. The general public can use it as a visual guide to fraud in the workplace to better understand how and where occupational fraud occurs.
The Fraud Tree can be found in Figure 3 of Occupational Fraud 2026: A Report to the Nations, and a glossary of terms is located on page 106 of the report.
