What you can do to combat workplace fraud

What you can do to combat workplace fraud

The use of one's employment for personal benefit via the purposeful misapplication of the resources or assets of the employing entity is referred to as occupational fraud.

The details

According to the Association of Certified Fraud Examiners' 2012 Report to the Nations on Occupational Fraud and Abuse, an average firm loses 5% of its annual income to fraud. In 2012, incidents of occupational fraud resulted in a $140,000 median loss. Why does this matter? More frequently than we realize, fraud affects companies all around us severely. Consider your neighborhood bakery, favorite apparel retailer, or even your own business. Anywhere can experience fraud. Because of this, we must be more aware of the fraud warning signs and how to reduce their danger.

How does it work?

The ACFE found that employees in one of six departments—accounting, operations, sales, executive/upper management, customer service, and purchasing—committed the great majority (77 percent) of all fraud. This is not to imply that fraud doesn't happen in other areas, but these departments have a lot of decision-making power that has a direct impact on a company's financial status. Most fraud falls into one of three main categories:

  1. The theft or inappropriate use of business assets by an employee is known as asset misappropriation. Money theft is one type of asset misappropriation.
  2. Corruption schemes include employees acting in ways that violate their commitments to their employers in order to benefit directly or indirectly from a business transaction. A bribe paid to a customer or vendor is an example of a corruption scheme.
  3. Financial statement fraud occurs when an employee intentionally misrepresents or omits crucial information in financial reports. Financial statement fraud occurs when someone misrepresents revenues on financial accounts in order to achieve strategic goals or understates expenditures.

Who is responsible?

What does a typical perpetrator resemble? When we think of fraud, we think of Enron's Kenneth Lay or Bernie Madoff. We presume the fraudsters are senior executives with great power and decision-making ability. While this is one source of fraud, it is far from the sole one. According to the ACFE, around 42% of offenders were employees, 38% were managers, and 18% were owners or executives. This proves that there is no such thing as a perpetrator stereotype. Anyone might be the culprit. 

What are some red flags?

How can we detect fraud given that we know it may happen anywhere and by anyone? There are various behavioral characteristics displayed by criminals that might serve as a red flag for fraud. The following are some characteristics to look for:

  1. Someone who lives above their means
  2. Someone who is experiencing financial troubles
  3. Relationships with vendors or customers are unusually tight.
  4. Someone who has a lot of control difficulties; and
  5. Absence of vacations.


According to the ACFE, the perpetrator exhibited one or more of these behavioral features in 81% of instances.

Approaches to Lower Risk

What safeguards can we put in place to guard against the effects of fraud? In most cases, corporations deal with fraud by taking remedial action. In order to stop fraud from happening again, safeguards are put in place once it occurs. Why not put rules in place right now in order to secure your organization?

It should start with the highest pitch. The organization's management must make sure that its workers promote moral behavior. Why would anyone value honesty and integrity if others in positions of power do not? Educating staff members on fraud prevention is also essential. It is important to inform staff members of what fraud is and the financial toll it has on the company.

Ensure that staff members are aware of the zero-tolerance fraud policy. Employees should have access to a reporting system that allows them to come forward anonymously with any suspicions of misconduct. Each employee should be informed of how to report issues and feel secure doing so without worrying about facing consequences. Additionally, the company should have fundamental anti-fraud measures in place for daily operations. These will help stop someone from having too much power and giving them the chance to maybe perpetrate fraud. Here is a list of some typical internal controls:

  1. Proper separation of roles
  2. Utilizing permission
  3. Physical security measures (such as closed doors and surveillance cameras)
  4. Rotating jobs and
  5. Mandatory holidays

A business should evaluate its fraud risk and employ these measures to cost-effectively reduce it.


Fraud cannot be completely eradicated. A corporation is still at danger even if its internal controls are the tightest. We can only be aware of the warning signals and put in place sensible rules to inform staff members about fraud and the detrimental effects it may have on a company. The key to prevention is collaborating with employees to foster a climate of openness and honesty.

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