When a staff member of an organization steals from the company, it is occupational fraud. Even though it may be unlikely that a worker will be involved in theft, just one situation will lead to disastrous results.
The Association of Certified Fraud Examiners (ACFE) defines occupational fraud as “the use of a person’s occupation for self-enrichment through deliberate misappropriation and misuse of the employing organization’s asset and resources.” Every year, AFCE confirmed that organizations run at a loss of about 5% of their revenues to occupational fraud, which is way more than the fraud prevention would cost.
Three Types of Occupational Fraud
Occupational fraud is of three types: Asset misappropriation, Corruption, and Financial Statement fraud. Asset misappropriation is the most common type of occupational fraud. Asset misappropriation occurs when an employee is involved in the theft or misuse of the organization’s assets and resources by stealing cash, billing, or presenting hiked expenses reports.
In cases of corruption, the senior management staff is usually most guilty. Over sixty percent of corruption cases have people in positions of authority as perpetrators. This type of occupational fraud refers to an employee’s involvement in the misuse or abuse of his influence in business transactions to obtain a benefit or any kind of bribery. This corrupt act has caused a median loss of about $250,000 to victim organizations.
Financial Statement fraud is the least common but most costly type of occupational fraud. It involves an overstatement of assets, profits, revenues, and an understatement of losses, expenses, and liabilities. It is deliberately manipulating the representation of an organization’s financial status through the intentional omission or misstatement of amounts in the financial statement in the bid to deceive the receivers or users of the financial statement.
Be Proactive
Every business owner needs to put measures in place to combat occupational fraud. You need to consider the enormous financial consequences of occupational fraud on your business. Being proactive is a necessity. The earlier the protection systems are implemented, the better.
It is essential to set up systems for accountability. In smaller organizations, employees are assigned to check each other’s work to ensure accountability. One individual will not be given to a task without proper documentation and supervising processes.
When setting up an anti-fraud plan, the focus should be on employees who have a higher chance of occupational fraud. Staff in departments prone to fraud include management, accounting, sales, etc. This is because they are at the forefront of invoices, payments, and other items of value. It is crucial to begin your fraud prevention plan from the top because it is easier to get everyone else to comply after the executives and management.
In occupational fraud, a thorough company audit can detect any problem. Regular audits help to assess the company by third parties who will remain impartial while spotting errors.
Fraud Loop Holes
Employees may notice possible fraud loops but may be too timid to report or be completely unaware of the act being fraudulent. Therefore, it is crucial to set up fraud training to acquaint them with fraudulent actions and behaviors and tips to report suspected cases, for instance, through the filing of anonymous tips or reports.
Occupational fraud can be prevented when proactive measures are put in place to ensure accountability and loyalty of all staff members and organizations. You can also hire the services of an expert accountant to guard your resources. Otherwise, without proper anti-fraud plans, the organization is prone to theft and other fraudulent acts that can cause setbacks for the organization, both in the organization’s finances and reputation.
If you have any questions about occupational fraud and how we could help you and your business, please get in contact, and we’ll be more than happy to help.
