When it comes to business fraud, experts say keep an eye on the people in charge

When it comes to business fraud, experts say keep an eye on the people in charge

We hear a lot about cyber crime and identity theft, but a new report says businesses in Alberta need to be on the lookout for what one investigator calls "bread-and-butter" white-collar crime.

And who is most likely to commit those frauds? The people in positions of trust within the company.

"We always say that fraud is about people telling lies for money," said investigator Greg Draper, a former RCMP officer who is now a fraud advisor for business and accounting firm MNP LLP, which released the report.

The report looked at data from more than 200 criminal convictions for fraud over $5,000 from 2012 to 2018. It found that the number of frauds isn't as high here as it is in some provinces, but when it comes to the value of the fraud, resource-rich Alberta tops the list at a median loss of $1.25 million per case.

"The largest dollar-value frauds are the investment fraud, mortgage fraud, the Ponzi scheme type things, those ones that are carefully orchestrated and planned," Draper said.

"But we see lots of the bread-and-butter type, white-collar crime, occupational frauds. Payroll frauds, theft of cash and other assets of a business, billing frauds, procurement frauds — the full gamut of it is seen across the province here."

While Alberta showed the highest median amount lost to fraud, Ontario had the highest number of fraud convictions at 122, and B.C. had the largest total losses at $14.3 million.

There were four times as many men convicted of fraud across the country as there were women, the report found.

Position of trust

"I think a lot of that might come down to the position of trust and authority inside of a company, where there's generally a gender imbalance at senior levels," Draper said.

"So where those men have been placed in a position of trust and have the ability to perpetuate and conceal their frauds, they're certainly being sentenced at a higher rate and they're more likely to commit those frauds."

The report also showed that fraudsters over the age of 65 were convicted of stealing the largest amounts.

"It's about opportunity. It's often the most senior people inside an organization that cause the most damage," Draper said.

"They've been around the longest. Their boards or their supervisors trust them, might relax the amount of oversight that's involved. They've got the authority to approve their own fraudulent transactions or to simply misappropriate funds straight out of the company or the organization."

Draper said junior staff who may have suspicions — internal auditors, financial staff who are lower down the totem pole — are often afraid to speak up.

"They may be reluctant to come forward and raise suspicion against their boss," he said. "So that's allowing those older people a greater opportunity to commit fraud, and for longer periods of time, which increases the amount of loss."

About 62 per cent of frauds were committed by people between 40 and 59 years old.

The report aims to give insight that will help businesses and organizations learn to protect themselves. Draper says one of the most effective things an organization can do is provide an anonymous tip line for staff.

Someone knows something

"Just about every time that I'm conducting a fraud investigation inside an organization, someone will say, 'you know, I had my suspicions but I was afraid to say something.' They often know, the rank-and-file employees know that there's a problem long before senior management or the board does," Draper said.

"Other fraud studies that I've seen over the years really support that — confidential tips is the single most effective way to uncover fraud inside your organization."

Draper said the main motivation of fraudsters is greed, despite the many excuses a fraudster will present when they're caught — addiction issues, financial pressure, a spouse losing employment.

At the end of the day, "fraud is is a deliberate choice that people make," he said.

"What I found really interesting from the report is that ... the decision of the judge was that in 63 per cent of the convictions, greed was the simple motivator," he said. "What that says is that all of us face different financial pressures at one time or another, but it's a rare few that decide to commit fraud on their employer and others."

Draper said no organization is immune.

"It's an important reminder for businesses in Alberta and across Canada that there's a lot of attention being rightfully paid to cyber risks [but] the other, traditional forms of fraud in their organizations have not gone away," he said.