The Fraud Examiner

The Correlation Between Age and Risk Profiles

Pete Miller, CFE, CPA

Shareholder, Clark Nuber                           

Do you think the risk profile of a young, eager professional beginning his or her first job out of college is different than that of a savvy veteran who has risen through the ranks of a company over a period of 15 or 20 years? In the eyes of a professional fraud investigator, the answer would certainly be yes. Any executive would likely reach the same conclusion in an impersonal, hypothetical conversation, but putting that knowledge into practice with familiar employees can be difficult.

Executives in a position to supervise and monitor the activity of a 15- 20-year veteran can be blinded by their personal relationships with that person and rely too heavily on long-established trust. However, the risk that a long-term employee will commit fraud depends not only on the individual’s tenure and familiarity with the business, but also on the life circumstances of someone in mid-career.

The Association of Certified Fraud Examiners (ACFE) is aware of this risk and considered age and tenure in its 2016 Report to the Nations on Occupational Fraud and Abuse. The report shows that people under the age of 26 perpetrated fraud in just 4.6% of the cases. The frequency of fraud cases takes a steady climb and peaks at 36 to 40 years of age at 20% of the cases and stays relatively steady through 41 to 45 years of age at 19.4% of the cases before falling off just as quickly as it rose. These results are not unique to the 2016 report; while the exact numbers have changed over the years, the trend has remained steady.


Why does a person’s age follow this bell curve distribution? The answer has two parts.

First, someone in their late 30s and early 40s could certainly have obtained the professional experience to have taken on a position of trust in a business. For a finance or accounting professional this could be a controller or CFO-level position. For an operations professional, this could be a director or C-Suite position as well. They have a lot of control, some autonomy, and if they’ve been with the company for an extended period, they also know where the holes in the internal control infrastructure lie.

Second, think about the possible life events that might be taking place for someone in their late 30s and early 40s. This is the time in a person’s life when they have kids entering college, or they might be having kids for the first time. They might have an ailing parent, they might be getting married, or they might be going through a divorce or a mid-life crisis. There is a myriad of circumstances that can manifest itself at this stage of life that tend to not develop earlier in life and will have likely dissipated later in life.

For that young, eager professional venturing into his or her first job out of school, he or she will likely have some financial matters, but in general these issues tend to be fewer. For the professional in the winter of their career, if those life events were going to happen they likely already have at that point, and they have planned well for retirement and are simply winding things down.

Each of the aforementioned life events represents a private financial need for someone in the middle of their career — a “perfect storm of risks” for someone in their late 30s and early 40s. That isn’t to say that fraud can’t happen from someone on the tails of this bell curve. Clearly, fraud does take place in those age categories, but from the perspective of assessing and managing risk it is a less frequent result.

So, not only does fraud risk need to be considered on the frequency plane, it needs to be considered on the magnitude plane as well. One additional point that the report shows relative to the age variable is that the overall magnitude of fraud steadily increases as the perpetrator gets older. 

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