Download (direct link):
Clymer also noted that in one case a hospital worker stole the identities of 393 patients for the purpose of obtaining bogus credit cards, while more than one Web site actively advertises stolen social security numbers for sale to those interested in gaining false credit.52
Authors Ellingson and Williams have cited the California Public Interest Research Group to the effect that their research indicates that it takes two years and $18,000 for the average identity theft victim to clean up their stolen identity and remove fraudulent information from credit files.53 Such time and expense is considerable both for the individual and to the country as a whole, when one thinks of the range of yearly victims cited by Attorney General Ashcroft. The cost to individuals alone may be $9 to $12.6 billion per year! Certainly, some part of this loss is caused by the improper activities of employees accessing customer data, much like the hospital worker. We simply do not know how much.
Lest we forget, the government is also an employer and, thereby, subject to some level of occupational fraud. Combining the local, state, and federal levels, there are millions of government employees in the United States. Trying to obtain comprehensive statistics on these workplace fraud losses is difficult because of the diffuse nature of the thousands of entities that can be termed governmental agencies. They range from the local school authority to massive federal agencies. One article, however, may provide some flavor of the scope of potential governmental problems.
In May 2002 the Associated Press reported that Inspector Generals from three federal agencies have advised Congress that they cannot even estimate the extent of credit card abuse by federal government employees. The article noted that at the Pentagon alone more than 46,000 employees had defaulted on in excess of $62 million in travel expenses charged to government credit cards. At the Education Department, the General Accounting Office could not find 179 pieces of computer equipment, worth more than $200,000, that had been charged to government credit cards. The total size of potential problems in this arena alone is unknown, but some idea of its scope is suggested by research conducted by the Associated Press. That organization learned in 2001 that the federal
THE STATE OF OCCUPATIONAL FRAUD
government had more than 3 million credit cards in its possession, one for three out of every four federal employees.
Gregory H. Friedman, the Inspector General at the Energy Department, advised a Congressional Committee that his agency alone had conducted 22 audits and criminal investigations of credit card abuse since 1998 and recovered more than $325,000 in unauthorized purchases. Among these violations, he noted, were kickbacks to suppliers for false invoices, goods bought for personal use and delivered to the employee’s home, and ghost purchases in which all required paperwork was completed but no goods or services were ever received by the government. Inspector General Janet Rehnquist of the HHS advised Congress that last summer her office began to analyze all credit card purchases for unusual amounts or characteristics. As a result of this effort, they have already begun 24 investigations involving 43 employees of that agency.54
Given the size, scope, infinite variety, and hidden nature of occupational fraud, what do we do to defeat it? One of the obvious first steps is to try to determine why it happens.
THEORIES OF OCCUPATIONAL FRAUD
In his book, Occupational Fraud and Abuse, Joseph Wells sets forth several theories of fraud causation based on his many years of research in the field and his interactions with a number of academics and theorists interested in the subject.
One of the earliest researchers in the arena was Edwin H. Sutherland, a criminologist at Indiana University. Focused initially on the activities of the elite business executive, Sutherland rejected the conventional wisdom that the motivation to commit fraud was the result of some mental defect or socioeconomic deprivation. Sutherland coined the term white collar crime, although he used it in the sense of corporate acts and acts by individuals acting in a corporate capacity. Later, Sutherland developed his theory of differential association, which held that criminal activity is a learned behavior, much like the ability to learn a language or play a musical instrument. Criminal learning, he theorized, involved two separate but supporting areas of endeavor: achieving the technical competence to commit the fraud and “the attitudes, drives, rationalizations, and motives of the criminal mind.”1
Donald R. Cressey was a student of Sutherland’s who undertook his own research into the causation of fraud, especially that committed by embezzlers. Much of Cressey’s work was based on his interviews with several hundred incarcerated embezzlers. As a result of this work, Cressey came to develop what Wells has characterized as the fraud triangle; that is, the three sets of conditions conducive to fraud taking place: (1) a perceived nonsharable financial need or pressure; (2) an opportunity to commit the act(s); and (3) a rationalization mechanism to permit the fraud to occur.2