Occupational fraud is the use of one’s occupation for unauthorized personal gain through deliberate misuse of the employing entity’s resources or assets. The Association of Certified Fraud Examiners (ACFE) estimates that United States organizations lose 7% of their annual revenues to fraud. (2008 ACFE Report to the Nation on Occupational Fraud & Abuse).
Common Pressures:
High Personal Debt
Gambling or Drug Addictions
Personal Crisis
Overworked (few people doing more work)
Keeping up with society
Common Rationalizations:
I will pay back when I have some extra cash
Everyone else is doing it
I am underpaid and overworked
Just this once…
It’s important to note that pressure and rationalization are most often “internal” motivators that are beyond an employer’s control. However, the one variable in the fraud triangle that is within the control of owners and management is OPPORTUNITY. Limiting an employee’s opportunity through a strong tone at the top, proper internal controls, and oversight can limit losses due to occupational fraud.
How Can Businesses Minimize the Risk of Fraud?
Make your vigilance against fraud front and center. Fraud should be discussed openly and your employees should all be trained on what to look for and pitfalls to avoid. Owners and management are responsible for setting a tone of acceptable behavior. Additionally, an anonymous tip line to report fraudulent activity is always a good idea.
Internal Controls Best Practices:
Have bank statements mailed to the business owner’s home. Review the bank statement for unauthorized withdrawals; ensure all withdrawals represent authorized business payments
Segregate duties and make sure they stay segregated, even in periods of downsizing.
Perform unexpected “audits” on payments – demand backup documentation and reviews throughout the year.
Cash business? Verify cash is listed on the top of bank deposit slips and that deposit slip totals match bank statement totals.
Perform annual reviews of vendors and service providers to ensure they are legitimate.
What Should be Done When Fraud is Suspected? If you suspect fraud or have received information that alleges fraud has occurred, contact legal counsel for your company, notify the local authorities, and review your insurance policy to fully understand the benefits of your coverage. You may not realize it, but your insurance may cover a portion of the loss and in some cases, the cost to investigate the loss event and establish the loss amount.