Unique Characteristics of Predator Frauds

Abstract

Previous research has called for examination of differences in the fraud profile between “predator” fraudsters (repeat offenders) and “situational” fraudsters (first-time offenders). Using data from nearly 2,800 fraud cases included in the Association of Certified Fraud Examiners' Report to the Nations database, we identify unique characteristics of predator frauds. In the primary analysis, we find that predator fraudsters are less likely to be in leadership positions, are less educated, and tend to target smaller companies, while appearing less likely to target public companies. Predator frauds are shorter, but more costly overall, and there is some evidence that predator frauds are more likely to involve asset misappropriation or corruption. We also present exploratory analyses of “possible predators,” first-time offenders who strike the organization early in their tenure. Overall, the data suggest that predators and situational fraudsters are fundamentally different on several dimensions. Based on the results, we discuss implications related to fraud prevention and detection, as well as directions for future research.

Annual Editor Report

“…The second volume includes a variety of topics and methods. Two articles provide analyses of data collected by the Association of Certified Fraud Examiners on worldwide fraud cases (Hermanson, Justice, Ramamoorti, and Riley 2017;Bishop, Hermanson, and Riley 2017).…”

Occupational Fraud: Executive Compensation and Enforcements Against Auditors and Perpetrators.

“…In addition, CEOs and CFOs with prior legal records are more likely to commit fraud (Davidson, Dey and Smith 2015). Furthermore, predators (repeat) and situational (first-time) fraudsters are found to be fundamentally different in several dimensions (Hermanson et al 2017). We expect these differences to be reflected in the outcomes faced by the perpetrators.…”

“…We measure the position as an employee, a manager, and an owner/executive. Education (EDUCATION): Significant educational differences have been documented between repeated offenders and first-time offenders (Hermanson et al (2017). Even though these differences have not been correlated with the outcomes, we expect education level to serve as a status characteristic and impact the fraud outcomes.…”

“…Prior research has shown that crime severity is positively related to outcome severity and that this relationship is moderated by the perpetrator's characteristics (Albonetti 1998;Wheeler, Weisburd, Waring and Bode 1988;Hagan and Parker 1985). The outcomes of whitecollar crime cases, such as occupational frauds, are often situation-specific (Holtfreter, Piquero and Piquero 2008b) and vary by the victim and perpetrator characteristics (Agrawal and Cooper 2017;Beneish 1999;Garrett 2015;Hermanson, Justice, Ramamoorti and Riley 2017;Holtfreter 2005;Karpoff et al 2008). Victim organizations determine which outcomes to pursue against the perpetrators, considering the facts and circumstances of the case, such as the severity of the fraud and the perpetrator's status.…”

“…The perpetrator's status characteristics, such as age, economic status, race, gender (Ward et al 2012;Benson and Gottschalk 2015), education, position in the victim organization, prior offense history, and behavioral indicators (Arnulf and Gottschalk 2013;Bishop et al 2017;Hermanson et al 2017;Holtfreter 2005;Piquero and Benson 2004) have been shown to have a direct effect on punishment. Rossi, Simpson and Miller (1985) find that the perpetrator's age and gender have both direct effects on the sentence length and indirect effects through the case complexity, while the perpetrator's education has an indirect influence on the sentence length, via case complexity.…”