OUR THOUGHTS ON:

Be Aware of the Increase in Occupational Fraud

Business Advisors|Risk Advisory/Internal Audit

By Scott Walton

With the increase in financial pressures and other factors related to the economic crisis, occupational fraud has become more prevalent over the past couple of years. Occupational fraud is an employee’s abuse or misuse of their position to commit intentional misappropriation or misuse of company assets.  Occupational fraud includes things like check fraud, revenue skimming and false invoicing.

The Association of Certified Fraud Examiners (ACFE) estimates that organizations around the world will lose 5% of their annual revenues to occupational fraud. A contributing factor to the increase in fraudulent activity is the increase of employee layoffs that in turn affects the organization’s ability to maintain the proper internal controls to mitigate the risk of fraud. The threat of layoffs is also a factor in the increase of fraudulent activity,  the ACFE also noted that embezzlement by employees has increased over the past years. Are your business owners, directors, and managers taking the appropriate steps to help prevent fraud in your organization?

The ACFE conducted a survey of fraud examiners who investigated occupational fraud and abuse cases from 2012 through 2013. Trends resulting from the survey provided insight on what organizations should take notice of to better protect the organization from the risk of fraud. Here are a few tips to help prevent occupational fraud in your organization.

  • A fraud hotline should be in place. The survey revealed occupational fraud is more likely to be detected from a tip than by any other method.
  • Know the red flag signs and behavioral indicators. Common red flag behaviors that indicate potential fraudulent activity is taking place are personnel living beyond their means, personnel with financial difficulties, personnel displaying an unusual association with a client or vendor, and personnel who display difficulty sharing their duties with others.
  • External audits should not be the sole resource for detecting fraudulent activity. Only a small percentage of fraud is detected through external audits. Your organization should have a robust and documented fraud prevention program in place including strong internal controls and an appropriate incident reporting system, such as a fraud hotline.
  • Small businesses are more vulnerable to fraud primarily due to the lack of proper internal controls.  The losses suffered from fraud by a small organization are typically greater proportionally. Businesses need to be more attentive to making sure proper internal controls are in place to prevent fraud.
  • Focus more on preventing fraud than on the recovery from fraud. It is more cost-effective to design and promote a preventive internal control environment than it is to take action to recover from fraud.

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This advice is not intended or written to be used for, and it cannot be used for, the purpose of avoiding any federal tax penalties that may be imposed, or for promoting, marketing or recommending to another person, any tax related matter.

Material discussed is meant for informational purposes only, and it is not to be construed as investment, tax, or legal advice. Please note that individual situations can vary. Therefore, this information should be relied upon when coordinated with individual professional advice.

© 2018 Schneider Downs. All rights-reserved. All content on this site is property of Schneider Downs unless otherwise noted and should not be used without written permission.

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