New Report Highlights Limitations of Relying on Background Screening as Fraud Prevention Measure
When companies recruit a new hire, they often conduct a background check to identify problems in their potential new employee’s past behavior. When a red flag pops up, some businesses will rescind their employment offer and go with a different candidate who appears less risky on paper.
But appearances can be deceiving. In new analysis from the Association of Certified Fraud Examiners (ACFE), 88 percent of occupational fraudsters passed their pre-employment background checks without exhibiting red flags; 12 percent of fraudsters displayed a red flag but were hired anyways.
“Notably, however, 4 percent of cases involved perpetrators with a prior fraud conviction—either because that information was not identified during the hiring process or because it did not preclude their employment,” according to the ACFE’s 2026 Report to the Nations, which was published this week. “These results highlight the limitations of relying solely on criminal history screening as a fraud prevention measure.”
This year marks the 30th anniversary of the Report to the Nations. This year’s report looked at 2,402 occupational fraud cases from around the world during the past two years that caused total losses of more than $3.4 billion and an average of $1.45 million per case. CFEs estimate that organizations lose 5 percent of their revenue each year to fraud.
“The massive amounts lost each year to occupational fraud prevent or impede organizations around the world from paying wages, developing technologies, delivering services, building infrastructure, fighting diseases, raising living standards, and otherwise fulfilling their missions,” wrote ACFE CEO John Warren in the forward of the report. “Simply put, these crimes impact lives.”
Some of these crimes are likely committed by repeat perpetrators. Yet, the ACFE found that it was difficult for organizations to assess this risk in criminal history and employment history screening of new employees. Prior discipline for fraud was uncommon for perpetrators, with 85 percent exhibiting no known history of fraud-related disciplinary action before the scheme occurred, the report explained.
“Among the remaining cases, a small proportion involved individuals who had previously been terminated for fraud (6 percent), while others had received non-termination disciplinary sanctions (8 percent),” according to the report.
Responsibility for fraud-related discipline also varied across employers. The ACFE identified that more than half of fraudsters “had been disciplined by the same organization victimized in the reported case, while 33 percent had faced consequences at a previous employer. An additional 12 percent had been disciplined by both a former employer and the victim organization.”
After a new fraud examination identified the perpetrators in the scheme, organizations typically fired them (68 percent of cases). Other disciplinary actions included:
- Probation or suspension – 9 percent
- Permitted or required resignation – 8 percent
- Agreed to settle – 8 percent
- Gave a written or verbal warning – 6 percent
- Issued no punishment – 4 percent
The trend highlights an underlying problem: Fraudsters rarely stop committing fraud until they face serious consequences for their behavior, says Mason Wilder, CFE, research director for the ACFE.
“Some fraudsters might think or might interpret getting fired from their job as a serious consequence, but plenty of others don’t,” he explains. “They would go, ‘I’ll just find another job,’ and ‘hey, look, there’s the same vulnerability here that I was able to exploit at the last company and I didn’t do any jail time. I didn’t have to pay any money back.’”
Yet, fewer organizations are reporting fraudsters to law enforcement to potentially face criminal charges for their activities. The 2026 report found that just 54 percent of occupational fraud cases were referred to law enforcement, a major downturn from 2008 when 69 percent of cases were referred.
Of organizations that declined to refer fraud cases to law enforcement, most said they thought internal discipline was sufficient (51 percent) or they were afraid of bad publicity related to the activity (35 percent).
“The more that organizations decide not to refer cases to law enforcement, the more that there are going to be fraudsters out there looking for new jobs where they can go commit the same kind of fraud and they don’t have any kind of paper trail or record that will show up on a background check. That just makes them some other organization’s problem,” Wilder adds.
Who’s Committing Fraud?
Employees at all levels in organizations across all verticals commit fraud. But ACFE identified some recurring patterns in who is most often committing fraud. Occupational fraudsters are often men (71 percent of cases) at a manager (41 percent of cases) or employee level (41 percent). They also tend to have at least a university degree (62 percent) and are between 31 and 50 years of age (67 percent of cases).
More than half of the cases ACFE analyzed for the 2026 report came from just five business departments:
- Operations – 13 percent
- Accounting – 13 percent
- Sales – 10 percent
- Customer service – 10 percent
- Executive/upper management – 10 percent
Employees in accounting and operations are well represented in the ACFE study because they have broad access to assets and financial records—both key facets for carrying out many occupational fraud schemes.
ACFE also identified commonalities in the types of fraud that cost organizations the most. Male occupational fraudsters caused median losses that were 39 percent higher than female occupational fraudsters; fraudsters over the age of 50 caused the highest median losses ($272,000); owner and executive fraudsters created the greatest losses ($475,000 median losses); and occupational fraudsters who worked together—colluding against their employer—caused median losses significantly larger than single schemers ($224,000 in median losses, compared to $50,000).
Fraudsters over the age of 60 were particularly damaging to their companies. ACFE found that occupational fraudsters in this category caused median losses of $850,000 for their small share of cases.
“Instead, perpetrators between the ages of 31 and 50 were responsible for the majority of frauds in our study, collectively accounting for 70 percent of reported cases,” the report explained. “These findings indicate that, while fraud committed by older individuals tends to be more costly, occupational fraud most frequently originates from mid-career employes.”
ACFE also tracked that the longer someone has worked for a company, the more costly his or her fraud schemes tend to be. Median losses for fraudsters employed for more than 10 years were $200,000, compared to $50,000 for those employed for under one year.
Fraudsters also tend to display red flag behaviors, with 84 percent of fraudsters displaying at least one of the indicators that ACFE tracked in the report. The eight most common behavioral cues included:
- Living beyond means – 39 percent
- Financial difficulties – 29 percent
- Unusually close association with vendor/customer – 17 percent
- Control issues – 12 percent
- Irritability – 11 percent
- Bullying or intimidation – 11 percent
- Wheeler-dealer attitude – 9 percent
- Divorce/family problems – 9 percent
In fact, living beyond their means has been the most common behavioral red flag since ACFE began tracking behavioral data in 2008.
There are also trends in the types of fraud schemes that ACFE has tracked. Asset misappropriation schemes—like thefts of noncash assets or billing schemes—were the most common (90 percent of cases) but least costly ($100,000 in median losses). Financial statement fraud was the least common (6 percent of cases) but had the highest dollar impact ($1 million in median losses). The ACFE also tracked that corruption is now an element in almost half of all occupational fraud cases (45 percent, causing $150,000 in median losses).
How are Fraudsters Getting Caught?
Organizations typically detect occupational fraud 12 months into the scheme. That delay could be partly due to the fact that certain schemes play out over a fiscal year—such as financial statement fraud—that the organization would potentially detect through reviews of quarterly reports.
But the most common way occupational fraud is detected is via a tip (43 percent) from an employee (55 percent of all tips) or a customer (21 percent of all tips) via a Web-based reporting mechanism (46 percent), email (34 percent), or a phone call (23 percent).
Organizations with formal reporting mechanisms had lower median losses ($100,000) and time to detection for occupational fraud (11 months), compared to those without ($150,000 in median losses and 17 months).
What this signifies to Wilder is that it is critically important for companies to have a mechanism in place to collect tips.
“Not only do you have it in place, but you also test it, and you evaluate it like you would any other control to make sure it’s working well,” Wilder says. “And you spread awareness, not just within your staff or within the organization, but also to your vendors and customers as well, so that people know that it exists and how to access it.”
Effective fraud awareness training for employees and management also translates into lower median losses from occupational fraud ($84,000) compared to those without ($150,000). In turn, trained employees were more likely to report suspicious activity when they say it (71 percent) compared to employees without this training (29 percent).
Along with employee training and awareness to increase fraud reporting, the ACFE also makes the case for organizations leveraging proactive detection methods. It found that “fraud can be uncovered up to four times faster with active detection methods compared to passive detection methods,” according to the report. “Through internal controls and policies that actively detect misconduct, such as management review, account reconciliation, and surveillance and monitoring, organizations can potentially reduce the impact of fraud.”
What does this look like in practice? It can be pretty simple. One example from Wilder is requiring employees to submit receipts and other claims continuously, instead of using a process where these are processed at the end of the month. Organizations can also implement anomaly detection and reviews for wire transfer authorizations, payments, and “anything that leaves a number trail or that is a transaction,” he adds.
Next Steps for Fraud Prevention
For organizations looking to bolster their fraud prevention efforts, Wilder recommends reviewing the 2026 report and assessing what controls are already in place or should be added to detect fraud.
He also suggests using the report to help guide fraud risk assessments by looking at the findings on the most common schemes in certain industries, departments that pose the highest risk, and creating an assessment that covers those areas.
“That helps you guide and potentially tailor or prioritize your fraud risk assessment efforts, which I think can be really valuable,” he says.
It can also help keep occupational fraud and the risk of it in perspective for the organization as more companies are concerned about external fraud facilitated by artificial intelligence (AI), Wilder adds.
“I think this report serves as a good reminder that yes, there are alarming trends related to external fraud and fraud sophistication and professionalization,” he says. “But don’t forget about occupational fraud and the internal fraud risks you see very clearly in this report through 2,400 real world cases. These risks persist. People are still committing occupational fraud, and they are going to continue to commit occupational fraud.”
For more analysis on fraud trends, revisit our series on White Collar Crime and our coverage of the ACFE’s 2024 Report to the Nations.
