Classification of Fraudsters

This article elaborates on ‘Classification of Fraudsters’.

First-time Offenders

Most occupational fraudsters are first-time offenders. Those who have committed fraud previously are lower in terms of the percentage as compared to first-time offenders. 

When the background is checked for the first-time offender, no previous similar misconduct is identified, which makes the first-time offenders escape from any serious trouble or punishment. There is an extremely limited number of cases on record where the fraudsters are fired by the employer due to committing fraudulent activities.

The first-time offenders are not considered experts in performing fraudulent activities because they may leave the marks behind easy to trace by the investigators. Most first-time offenders who commit occupational fraud do not receive any punishment from the employers because of the immaterial impact on the company. The first-time offenders are fired if the amount of fraud is significant or significant reputational losses are borne by the company. 

In most cases when a fraud incident occurs, the fraud investigation department performs routine procedures and marks the potential impact of the fraud in the records. Provisions are created for the frauds in the books of accounts, and in case the fraudster is identified, the settlement is made to reduce the amount of provision and losses that occurred to the organization. 

Recidivists

These are fraudsters who repeatedly commit fraud in an organization or company. They become experienced in performing fraudulent activities, which may be due to the weak internal controls system or weak governance structure. They find the internal controls system easy to exploit so plan and perform fraudulent activities periodically.

They may commit fraud either individually or they may be a small group of people in the organization from different departments at different job roles. 

Classification Of Fraudsters

Those Who Commit Fraud to Benefit the Organization

There are several types of fraudsters who perform fraudulent activities to provide the benefit to the organization. This may be due to the pressures and targets provided by the senior management, which employees must perform. 

On the other hand, there are fraudsters who, being outsiders to the different competitive organizations, conduct frauds with them to provide benefits to their organizations. For example, the employees of a company may behave like the customers of another company and communicate with the people of that other company and obtain key business information, which is used then for the benefit of their organization.

There may be peer pressures and desire for excessive incentives from the employer, where employees feel it is a duty to commit fraud to outperform and get these incentives and good status or position in the company. 

Outsiders or Third-Party Fraudsters

Third-party fraud can be particularly hard to uncover. People within an organization may contact outsiders, such as vendors to perform fraudulent activities. Employees become an agent for the vendors and for the benefits from the vendors they commit frauds and misuse the funds of the company. Insiders and outsiders commit procurement fraud such as inflating invoices. 

The possibility of occurrence these types of frauds are in those organizations where vendors’ due diligence process is not in place. 

The possibility of occurrence of these types of frauds may be reduced by taking measures such as asking self-assessment questions, which may be asking why a particular vendor is selected, why the same vendor is used each time the procurement is made, and why the same person within the company coordinates with the same vendor each time when procurement is made.

Final Thoughts

Individuals who commit fraud, or ‘fraudsters’, often use different methods from several different personas. They may deceive a public official, fabricate evidence and conceal their activity. This article elaborates on ‘Classification of Fraudsters’ and how they are different to each other. Understanding the different types of fraudsters will help an organization become more aware of the common methods used by fraudsters.

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