White-collar Crime Demographics

Criminologists look at demographics to determine who commits more fraud and why - younger employees versus older employees? Managers versus top-level execs? Learn how frauds and losses vary by age groups and other characteristics and what employers can do to prevent their companies from becoming victims of employee theft.  

Sam was with some friends at a party and told a story from his early college days when he worked as a sales clerk for a women's jewelry store. His boss was a mistrustful curmudgeon who constantly suspected that Sam and all the other employees pilfered merchandise and never worked hard enough. Sam was a model salesperson and often worked overtime but still his boss was suspicious.

One day, the boss found Sam sitting in the break room instead of standing at the counter waiting on customers. Sam's feet were hurting and there were other employees up front so he thought he could take a five-minute break. The boss yelled at him and accused him of not working hard enough even though Sam had already worked 45 hours that week (on top of attending school full-time). Before Sam could explain that his feet were hurting, the boss called all the employees to the break room and lectured them about not taking long breaks. The disturbing confrontation left Sam humiliated and angry and he no longer desired to be a model salesperson. 1 

Young employees who are chastised by their supervisors may embark on a mission "to get back at the boss" by stealing from their companies. ACFE Chairman Joseph T. Wells, CFE, CPA, points out in the Association publication, "The Corporate Fraud Handbook: Prevention and Detection," that criminologists have discovered that many young people fearlessly commit crimes because they're incapable of realizing that their actions can have serious consequences such as ending up in jail. Here we'll discuss other reasons why both young and old employees commit financial crimes and how employers can protect themselves from becoming victims of employee theft.

Stained white collars
According to the ACFE, white-collar crime is estimated to cost the United States more than $660 billion annually. Edwin Sutherland coined "white-collar crime" during a speech he gave to the American Sociological Society in 1939. He defined it as a "crime committed by a person of respectability and high social status in the course of his occupation." While there has been debate as to what constitutes a white-collar crime, today the term encompasses a variety of nonviolent crimes usually committed for the fraudster's financial enhancement in commercial situations like the workplace. Many white-collar crimes are increasingly difficult to prosecute since the perpetrators are sophisticated criminals who attempt to conceal their activities through a series of complex transactions.

Inside their minds
During the 16th ACFE Annual Conference, the Association's director of education, Nancy Pasternack, CFE, CPA, presented a breakout session, "Inside the Minds of White-Collar Criminals." She said that younger employees were more prone to committing misappropriation frauds because of their lack of "commitment to conformity." Because younger employees tend to be less committed to the idea of conforming to established social rules and structures they're more likely to engage in illegal fraudulent activities, she says.

Agreeing with Wells, Pasternack said in an interview that younger employees may commit more crimes because of negative treatment from their companies or employers. When companies treat new and young employees as though they're expendable, they set themselves up to be taken advantage of by a group that's already prone to committing more crime because of their weak grasp of the consequences. So if employers, Pasternack says, give their younger employees the same rights, fringes, and privileges of the older employees with seniority, the younger employees will feel more appreciated and will be less likely to victimize their companies.

Fraud Triangle - motivations for employee theft
One of Sutherland's brightest students at Indiana University in the 1940s was David Cressey, who concentrated on studying embezzlers. (He called them "trust violators.") Cressey devised the famous Fraud Triangle, which consists of the three sides of Perceived Opportunity, Pressure, and Rationalization. Depending on the employee's age group and status in the company, he or she may have different opportunities, pressures, and rationalization for committing financial crimes. Nancy Pasternack says that "the types of fraud schemes perpetrated by younger employees are often different than those perpetrated by older employees."

According to Pasternack, younger employees likely will show higher rates of theft of inventory or supplies and abuses of sick leave and other lower-level scams when compared to older employees. For those over the age of about 25 until retirement, she says, they will commit less of these basic scams but more of the advanced and expensive crimes generally because these older employees face greater opportunities and pressures. Although the incidence of theft is higher among younger employees, the losses associated with thefts carried out by senior employees are higher, she says.

Differences in financial crimes by age group
A landmark 1983 study by Richard C. Hollinger of Purdue University and John P. Clark of the University of Minnesota, "Theft By Employees," analyzed the responses of 10,000 employees from four different industry segments. In an interview, Wells says that "although the study is over 20 years old, it was the most comprehensive and largest research project on the subject. Among their many other observations, they determined that younger workers were more prone to theft for several reasons: First, younger workers have not developed a commitment to conformity; that is, they have little invested in the job. Second, they are not paid particularly well in most instances. Third, they have not absorbed the culture of the workforce enough to know that theft can be viewed as a serious crime."

While Holliger and Clark's research suggests that a greater proportion of young people (particularly males) engage in more theft than their older counterparts, "we know from our own 'Report to the Nation on Occupational Fraud and Abuse' that there's an inverse proportion between age and the median loss because older workers tend to hold higher-ranking positions where they control a greater portion of the company's assets," says Wells.

In the 2004 "Report to the Nation," age was proven to have a direct correlation with the size of the median loss. While there were only nine frauds in the study committed by persons over the age of 60, in those cases the median loss was $527,000, which was 29 times higher than the losses caused by the youngest perpetrators.

Approximately half of the perpetrators in the study (49 percent) were over the age of 40, while only one in six (17 percent) were under the age of 30. (This data runs counter to some studies that have suggested that younger employees are more likely to commit illegal acts. 2) (See Figure 1.)

Figure 1. This graph from the 2004 Report to the Nation on Occupational Fraud and Abuse by the ACFE, doesn't necessarily prove that younger employees commit more financial frauds because of the methodology used for this study. (See footnote 2)  

Importance of position
Age is a secondary factor that should be considered after an employee's position in the company, which has the most significant effect on the size of the losses in a fraud scheme. As the levels of authority for perpetrators rise, fraud losses also rise accordingly, according to the "Report to the Nation."
(See figure 2.) (Read the entire report at http://acfe.com/fraud/report.asp)

Figure 2. The position of the fraudster in the company has the most significant effect on the size of the fraud loss. In this graph from the ACFE's "Report to the Nation on Occupational Fraud and Abuse" we see that those in the Owner/Executive positions account for almost nine times the median fraud loss as those in staff or managerial positions.  

Public perception of white-collar crime vs. street crime
According to The National Public Survey on White Collar Crime conducted in 2000 by the National White Collar Crime Center (NW3C), respondents were asked to compare a "street theft" (stealing a handbag containing $100 from someone on the street) with a fraud (a contractor defrauding someone of $100) and pick which one they felt was a more serious crime. More respondents believed the fraud to be more serious (44 percent) than did those who found the street theft to be more serious (38 percent). The remaining respondents (18 percent) viewed the crimes as equal in level of seriousness. (See Figure 3.)

Figure 3. Reprinted with permission. ©2000 The National White Collar Crime Center. All rights reserved. 

Fraud costs dwarf cost of street crime
Criminologists generally agree that white-collar crime costs dwarf those of street crime even though it's difficult to precisely measure white-collar crime losses. The FBI's Uniform Crime Reports (UCR) national arrest statistics from 1990 to 1998 show that while arrests for most index crimes of violence (murder, non-negligent manslaughter, rape) and property crimes (robbery, burglary, motor vehicle theft) declined, arrests for fraud and embezzlement rose significantly. There were 182,752 arrests for fraudulent activity in 1990, and 220,262 arrests in 1998 (including 70,678 males and females both over and under the age of 18 for forgery and counterfeiting, and 10,585 for embezzlement). Though the rates of arrests have been increasing, many employee thefts are undetected. In the NW3C survey, respondents were asked who they felt would be more likely to be caught - a robber or a fraudster. A greater amount (74 percent) felt that the robber would be caught easier than the fraudster. (See Figure 4.)

Figure 4. Reprinted with permission. ©2000 The National White Collar Crime Center. All rights reserved. 

Employers' preventions
So what might employers do to motivate their workers not to commit economic frauds? Nancy Pasternack suggests that "employers should be sure a good internal control structure is in place. This will keep honest people honest." Organizations can deter those looking to find a way to override internal control, she says, by working to create a culture of positive energy, loyalty, and family.

To help deter employees from engaging in fraudulent activity employers should inform employees that there will be:

• surprise cash counts;
• random inventory counts;
• hotlines for whistleblowers;
• surveillance cameras;
• backed-up and archived computer files and e-mails that exist on company computers; and
• monitored Internet activity.

These implementations will make potentially dishonest people think twice about committing a scam because it will be more difficult for them to rationalize their behavior and they will have more fear of being caught by a "loyal" employee, she says. Furthermore, if another employee suspects wrongdoing in a company where he or she feels like a part of the team or "family," he or she is more likely to blow the whistle because it has become more personal. Loyal employees are likely to view a wrongful act against the company as a wrongful act against their trusted leader or themselves personally. "In a nutshell," she says, "organizations should get their troops behind them and realize that humans not only cause fraudulent acts, they can also be the best source of prevention."

In the Hollinger and Clark study, the researchers examined how the employees' perception of control in the workplace can have an effect on their deviant behavior. If employees have a strong perception that they'll be caught they are less likely to engage in fraudulent activity. Therefore, increasing the perception of detection is one of the best ways employers can deter members of their organization from committing fraud.

Suzanne Mahadeo is a business writer for the ACFE, the assistant editor of Fraud Magazine and a graduate student at St. Edward's University in Austin, Texas. 

1 This is a fictitious composite case.
2 John Warren, J.D., CFE, the ACFE's general counsel, conducted the 2004 "Report to the Nation." He explains that the ACFE "didn't ask companies to report all the fraud they had experienced over a given period of time. Because we allow CFEs to select the particular case they will report on, I suspect there is a tendency for them to report the biggest or most interesting case they've investigated, rather than a case that might be more representative of their overall caseload. Typically, a high-dollar fraud is going to involve an older employee with greater seniority because those employees have greater access to cash and assets of a company than younger employees do. I think that's why our data skews more to older perpetrators as opposed to other studies that take a more comprehensive look at all frauds committee within a particular organization or industry. This is a necessary imperfection that results from our survey method."